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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 October 2, 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 001-40208
hayw-20211002_g1.jpg
Hayward Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
400 Connell Drive
Suite 6100
Berkeley Heights, NJ
(Address of Principal Executive)
Offices)
82-2060643
(I.R.S. Employer Identification No.)

07922
(Zip Code)
(908) 351-5400
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $.001 per shareHAYWNew York Stock Exchange
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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).     Yes  ☒   No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 Act).     Yes        No  ☒


APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

    Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐  Yes ☐ No
APPLICABLE ONLY TO CORPORATE ISSUERS:

The registrant had outstanding 232,077,812 shares of common stock as of October 25, 2021.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements contained in or incorporated by reference in this Quarterly Report on Form 10-Q that are not historical facts. When used in this document, words such as “may,” “will,” “should,” “could,” “intend,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “target,” “predict,” “project,” “seek” and similar expressions as they relate to us are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.

Examples of forward-looking statements include, among others, statements we make regarding: our financial position; business plans and objectives; general economic and industry trends; business prospects; future product development and acquisition strategies; growth and expansion opportunities; operating results; and working capital and liquidity. We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, including such statements taken from third-party industry and market reports. Important factors that could affect our future results and could cause those results or other outcomes to differ materially from those indicated in our forward-looking statements include the following:

• our ability to execute on our growth strategies and expansion opportunities;
• our ability to maintain favorable relationships with suppliers and manage disruptions to our global supply chain and the availability of raw materials;
• our relationships with and the performance of distributors, builders, buying groups, retailers and servicers who sell our products to pool owners;
• competition from national and global companies, as well as lower cost manufacturers;
• impacts on our business from the sensitivity of our business to seasonality and unfavorable economic and business conditions;
• our ability to identify emerging technological and other trends in our target end markets;
• our ability to develop, manufacture and effectively and profitably market and sell our new planned and future products;
• failure of markets to accept new product introductions and enhancements;
• the ability to successfully identify, finance, complete and integrate acquisitions;
• our ability to attract and retain senior management and other qualified personnel;
• regulatory changes and developments affecting our current and future products;
• volatility in currency exchange rates;
• our ability to service our existing indebtedness and obtain additional capital to finance operations and our growth opportunities;
• impacts on our business from political, regulatory, economic, trade, and other risks associated with operating foreign businesses;
• our ability to establish and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others;
• the impact of material cost and other inflation;
• the impact of changes in laws, regulations and administrative policy, including those that limit U.S. tax benefits or impact trade agreements and tariffs;
• the outcome of litigation and governmental proceedings;
• impacts on our business from the COVID-19 pandemic; and
• other factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q and in our IPO Prospectus             
(as defined herein).


These forward-looking statements involve known and unknown risks, inherent uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Actual results and the timing of certain events may differ materially from those contained in these forward-looking statements.

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated, believed, estimated, expected, intended, planned or projected. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.



TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Hayward Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
October 2, 2021December 31, 2020
Assets
Current assets
Cash and cash equivalents$295,077 $114,864 
Accounts receivable, net of allowances of $1,943 and $1,359, respectively
147,282 140,216 
Inventories, net208,993 145,330 
Prepaid expenses14,157 10,266 
Other current assets24,242 13,738 
Total current assets689,751 424,414 
Property, plant, and equipment, net of accumulated depreciation of $62,205 and $51,900, respectively
143,403 142,318 
Goodwill917,914 920,325 
Trademark736,000 736,000 
Customer relationships, net249,106 271,462 
Other intangibles, net98,185 106,687 
Other non-current assets11,585 5,944 
Total assets$2,845,944 $2,607,150 
Liabilities, Redeemable Stock, and Stockholders' Equity
Current liabilities
Current portion of the long-term debt$11,992 $2,768 
Accounts payable78,569 69,632 
Accrued expenses and other liabilities188,516 141,819 
Income taxes payable 4,435 
Total current liabilities279,077 218,654 
Long-term debt, net976,118 1,300,256 
Deferred tax liabilities, net275,228 273,628 
Other non-current liabilities13,223 10,851 
Total liabilities1,543,646 1,803,389 
Redeemable stock
Class A stock $0.001 par value, no shares authorized, issued, or outstanding at October 2, 2021; 1,500,000 shares authorized, 872,598 issued and 869,823 outstanding at December 31, 2020
 594,500 
Class C stock $0.001 par value, no shares authorized, issued, or outstanding at October 2, 2021; 100 shares authorized, issued, and outstanding at December 31, 2020
  
Stockholders' equity
Preferred stock, $0.001 par value, 100,000,000 authorized, 0 issued and outstanding at October 2, 2021
  
Common stock $0.001 par value, 750,000,000 authorized; 231,967,140 issued and 231,967,140 outstanding at October 2, 2021; 3,846,960 issued and 2,772,900 outstanding at December 31, 2020
231 3 
Additional paid-in capital1,055,886 10,297 
Common stock in treasury; 5,175,765 and 4,340,310 at October 2, 2021 and December 31, 2020, respectively
(14,216)(3,686)
Retained earnings257,155 202,997 
Accumulated other comprehensive income (loss)3,242 (350)
Total stockholders' equity1,302,298 209,261 
Total liabilities, redeemable stock, and stockholders' equity$2,845,944 $2,607,150 



See accompanying notes to the unaudited condensed consolidated financial statements.

1

Hayward Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
(Dollars in thousands, except share and per share data)

Three months endedNine months ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Net sales$350,624 $224,485 $1,049,409 $614,704 
Cost of sales188,170 118,331 559,033 335,128 
Gross profit162,454 106,154 490,376 279,576 
Selling, general, and administrative expenses68,807 49,446 207,129 136,854 
Research, development, and engineering6,370 5,097 16,187 13,895 
Acquisition and restructuring related expense783 6,825 2,452 17,575 
Amortization of intangible assets8,700 9,544 26,162 28,537 
Operating income77,794 35,242 238,446 82,715 
Interest expense, net11,050 17,046 42,297 54,169 
Loss on debt extinguishment  9,418  
Other non-operating (income) expense, net2,087 (2,474)4,655 (2,855)
Total other expense13,137 14,572 56,370 51,314 
Income from operations before income taxes64,657 20,670 182,076 31,401 
Provision for income taxes14,336 5,472 42,072 7,898 
Net income $50,321 $15,198 $140,004 $23,503 
Earnings per share
Basic$0.22 $0.07 $0.24 $0.11 
Diluted$0.21 $0.07 $0.23 $0.11 
Comprehensive income, net of tax
Net income $50,321 $15,198 $140,004 $23,503 
Foreign currency translation adjustments, net of tax expense (benefit) of $0 and $(756), and $763 and $(183), for the three-month and nine-month periods, respectively.
(5,312)1,985 (1,312)(873)
Change in fair value of derivatives, net of tax expense (benefit) of $395 and $569, and $1,620 and $(1,605), for the three-month and nine-month periods, respectively.
1,204 1,704 4,904 (4,817)
Comprehensive income $46,213 $18,887 $143,596 $17,813 











See accompanying notes to the unaudited condensed consolidated financial statements.

2

Hayward Holdings, Inc.
Unaudited Condensed Consolidated Statements of Changes in Redeemable Stock and Stockholders' Equity
(Dollars in thousands, except share and per share data)

Redeemable
Class A and C Stock
Common StockAdditional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
SharesAmountSharesAmount
Balance at December 31, 2020869,923 $594,500 2,772,900 $3 $10,297 $(3,686)$202,997 $(350)$209,261 
Net income— — — — — — 36,867 — 36,867 
Conversion to common stock upon IPO(869,923)(594,500)206,147,857 206 680,041 — (85,541)— 594,706 
Issuance of common stock22,200,000 22 351,553 — — — 351,575 
Issuance of stock186 — — 221 — — — 221 
Cash distributions— — — — — — (41)— (41)
Stock-based compensation— — — — 10,634 — — — 10,634 
Repurchase of stock(186)— — — — (214)— — (214)
Comprehensive income (loss) items— — — — — — — 3,650 3,650 
Balance at April 3, 2021 $ 231,120,757 $231 $1,052,746 $(3,900)$154,282 $3,300 $1,206,659 
Net income— — — — — — 52,816 — 52,816 
Finalization for IPO conversion— — — — (397)— (264)— (661)
Stock-based compensation— — — — 1,900 — — — 1,900 
Exercise of stock options— — — — — — — — — 
Repurchase of stock— — (19,500)— — (768)— — (768)
Comprehensive income (loss) items— — — — — — — 4,050 4,050 
Balance at July 3, 2021 $ 231,101,257 $231 $1,054,249 $(4,668)$206,834 $7,350 $1,263,996 
Net income— — — — — — 50,321 — 50,321 
Stock-based compensation— — — — 774 — — — 774 
Issuance of Common Stock for compensation plans— — 1,323,564 — 863 — — — 863 
Repurchase of stock— — (457,681)— — (9,548)— — (9,548)
Comprehensive income (loss) items— — — — — — — (4,108)(4,108)
Balance at October 2, 2021 $ 231,967,140 $231 $1,055,886 $(14,216)$257,155 $3,242 $1,302,298 

See accompanying notes to the unaudited condensed consolidated financial statements.

3

Hayward Holdings, Inc.
Unaudited Condensed Consolidated Statements of Changes in Redeemable Stock and Stockholders' Equity
(Dollars in thousands, except share and per share data)
Redeemable
Class A and C Stock
Common StockAdditional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
SharesAmountSharesAmount
Balance at December 31, 2019872,397$869,500 3,114,150 $3 $7,995 $(1,188)$159,900 $(2,650)$164,057 
 Net (loss)      (10,398) (10,398)
Cash distributions— — — — — — (51)— (51)
Stock-based compensation— — — — 654 — — — 654 
Exercise of stock options(423)— — — 58 — — — 58 
Repurchase of stock— — — — — (1,996)— — (1,996)
Comprehensive income (loss) items— — — — — — — (18,143)(18,143)
Balance at March 28, 2020871,974 $869,500 3,114,150 $3 $8,748 $(3,184)$149,451 $(20,793)$134,222 
Net income      18,703  18,703 
Cash distributions— — — — — — (51)— (51)
Stock-based compensation— — — — 653 — — — 653 
Exercise of stock options— — — — 5 — — — 5 
Repurchase of stock— — — — — (65)— — (65)
Comprehensive income (loss) items— — — — — — — 8,821 8,821 
Balance at June 27, 2020871,974 $869,500 3,114,150 $3 $9,406 $(3,249)$168,103 $(11,972)$162,288 
Net income    — — 15,198 — 15,198 
Cash distributions    — — (51)— (51)
Stock-based compensation    654 — — — 654 
Exercise of stock options  654,843  243 — — — 243 
Repurchase of stock(2,051) (1,044,810) — (437)— — (437)
Comprehensive income (loss) items    — — — 3,689 3,689 
Balance at September 26, 2020869,923 $869,500 2,724,183 $3 $10,303 $(3,686)$183,250 $(8,283)$181,584 

See accompanying notes to the unaudited condensed consolidated financial statements.

4

Hayward Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in thousands, except share and per share data)
Nine months ended
October 2, 2021September 26, 2020
Cash flows from operating activities
Net income $140,004 $23,503 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation14,096 14,491 
Amortization of intangible assets30,903 32,822 
Amortization of deferred debt issuance fees2,771 3,970 
Stock-based compensation13,308 1,962 
Deferred income taxes(3,014)(8,214)
Allowance for bad debts584 (115)
Loss on debt extinguishment9,418  
Loss on disposal of properties3,743 2,018 
Changes in operating assets and liabilities
   Accounts receivable(9,115)103,766 
   Inventories(66,027)5,151 
   Other current and non-current assets(10,699)(7,175)
   Accounts payable, accrued expenses and other liabilities, current and non-current73,191 54,256 
Net cash provided by operating activities199,163 226,435 
Cash flows from investing activities
Purchases of property, plant, and equipment(19,098)(13,690)
Purchases of intangibles(818)(1,091)
Proceeds from sale of property, plant, and equipment25 527 
Proceeds from settlements of investment currency hedge719 1,483 
Net cash used in investing activities(19,172)(12,771)
Cash flows from financing activities
Proceeds from issuance of common stock - Initial Public Offering377,400  
Costs associated with Initial Public Offering(26,124) 
Purchase of common stock for treasury(10,530)(2,497)
Cash paid for taxes from share withholdings(10,174) 
Proceeds from the issuance of long-term debt51,659  
Debt issuance costs(12,422) 
Payments of long-term debt(367,144)(3,500)
Dividends paid(41)(153)
Other563 8 
Net cash provided by (used in) financing activities3,187 (6,142)
Effect of exchange rate changes on cash and cash equivalents and restricted cash(1,505)1,137 
Change in cash and cash equivalents and restricted cash 181,673 208,659 
Cash and cash equivalents and restricted cash, beginning of period115,294 47,246 
Cash and cash equivalents and restricted cash, end of period$296,967 $255,905 
Supplemental disclosures of cash flow information
Cash paid - income taxes$53,686 $45,546 
Cash paid - interest 39,242 6,341 
Equipment financed under capital leases 2,045 

See accompanying notes to the unaudited condensed consolidated financial statements.

5

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



1. Nature of Operations and Organization

Hayward Holdings, Inc. (“Holdings” or the “Company”) is a global designer, manufacturer, and marketer of a broad portfolio of pool equipment and associated automation systems. The Company has six primary manufacturing facilities worldwide, which are located in North Carolina, Tennessee, Rhode Island, Spain (two) and China, and other facilities in the United States, Canada, France and Australia. Cash flow is impacted by the seasonality of the swimming pool business. Cash flow is usually higher in the second and third quarters due to terms of sale to our customers.

Prior to March 2, 2021, the Company had three classes of stock designated as Class A, Class B and Class C stock. On March 2, 2021, the Company reclassified its Class B common stock into common stock, par value $0.001 per share ( “Common Stock”), and then effected a 195-for-1 split of its Common Stock. On March 11, 2021, the Company converted each outstanding share of Class A stock into 195 shares of Common Stock plus an additional 42.5671 shares, which amount was determined by dividing (a) the Class A preference amount of such share of Class A stock, or $683.84 per share (the “Class A Preference Amount”), by (b) the initial public offering price of $17.00 per a share of Common Stock in the Company’s initial public offering (“IPO”), net of the per share underwriting discount, and (ii) the Company redeemed each outstanding share of Class C stock for an aggregate price of $1.00.

References to the “Reclassification” refer to (i) the reclassification of the Company’s Class B common stock into Common Stock on March 2, 2021, (ii) the 195-for-1 stock split of the Company’s common stock on March 2, 2021, (iii) the conversion of the Company’s Class A stock into Common Stock, (iv) the redemption of the Company’s Class C stock and (v) the filing and effectiveness of the Company’s second restated certificate of incorporation and the adoption of its amended and restated bylaws on March 16, 2021.

All share and per share amounts for all periods presented in these condensed consolidated financial statements and related notes have been adjusted retroactively, where applicable, to reflect the Reclassification.

On March 16, 2021, the Company completed its IPO whereby it issued 22,200,000 shares of its Common Stock, and entities affiliated with CCMP Capital Advisors, LP (“CCMP”), MSD Partners, L.P. (“MSD Partners”) and Alberta Investment Management Corporation (“AIMCo”) and, together with CCMP and MSD Partners, the (“Sponsors”) sold an aggregate of 20,893,665 shares of the Company’s Common Stock, inclusive of 2,815,887 shares sold by entities affiliated with the Sponsors pursuant to the partial exercise of the underwriters’ option to purchase additional shares. The shares began trading on the New York Stock Exchange on March 12, 2021. The aggregate net proceeds received by the Company from the IPO were $356.6 million, after deducting underwriting discounts and commissions and other offering costs. The Company used the net proceeds from the IPO to repay existing indebtedness outstanding under its credit facilities as further described in Note 7. Long-term Debt.


2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information. All such adjustments are of a normal recurring nature. Certain information and note disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), have been condensed or omitted pursuant to such rules and regulations.

These interim financial statements should be read in conjunction with the Company’s annual consolidated financial statements and notes thereto for the fiscal year ended December 31, 2020 included in the Company's final prospectus for the IPO filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, filed with the SEC on March 15, 2021 (the "IPO Prospectus"). The results of operations for the three and nine months ended October 2, 2021 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2021.

6

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

In the current year, the Company has changed its presentation from millions to thousands and, as a result, any necessary rounding adjustments have been made to prior year disclosed amounts.

Cash and Cash Equivalents

The following table provides supplemental cash flow information and a reconciliation of cash and cash equivalents and restricted cash to amounts reported within the Company's unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of cash flows (in thousands):
October 2, 2021December 31, 2020
Cash and cash equivalents$295,077 $114,864 
Restricted cash (a)
1,890 430 
Total$296,967 $115,294 
(a) included in Other current assets

Recent Accounting Pronouncements Not Yet Adopted

Accounting for Leases

Accounting Standards Update (the "ASU") 2016-02, Leases, was issued by the Financial Accounting Standards Board (the "FASB") in February 2016. This standard requires the Company, as the lessee, to recognize most leases on the balance sheet thereby resulting in the recognition of right of use ("ROU") assets and lease obligations for those leases currently classified as operating leases. The standard will be effective for the Company on December 31, 2021 if the Company ceases to be an Emerging Growth Company ("EGC") as of December 31, 2021, and the Company would adopt the standard, including presenting ROU assets and liabilities, as of January 1, 2021 in its Annual Report on Form 10-K for fiscal year 2021. In the third quarter of 2021, the Company began the implementation process and selected the modified transition approach method as well as the package of practical expedients.

In addition to the recognition of the ROU assets and lease obligations, the Company anticipates changes in systems, processes, and controls via the use of a software solution for leases. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of items in scope and related cash flows are unchanged.

New Credit Loss Standard

ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, was issued by the FASB in June 2016. The standard will be effective for the Company on December 31, 2021 if the Company ceases to be an EGC as of December 31, 2021, and the Company would adopt the standard as of January 1, 2021 in its Annual Report on Form 10-K for fiscal year 2021.

While the requirements of the new guidance represent a change from existing GAAP, the underlying economics of items in scope and related cash flows are unchanged. The Company plans to focus on gathering data, developing procedures and testing before adoption. Focus areas include, but are not limited to (i) updating procedures to reflect new guidance requiring establishment of allowance for credit losses on accounts receivable; (ii) establishing procedures to identify and review all leases receivable, (iii) developing, testing, and implementing controls for newly developed procedures, if any, as well as for additional annual reporting requirements. The Company is currently evaluating the impact of this new accounting standard on its unaudited condensed consolidated financial statements.

Simplifying the Accounting for Income Taxes

ASU 2019-12, “Simplifying the Accounting for Income Taxes” (Topic 740), was issued by FASB in December 2019. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The standard will be effective for the Company on December 31, 2021 if the Company ceases to be an EGC as of December 31, 2021, and the Company would adopt the standard as of January 1, 2021 in its Annual Report
7

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

on Form 10-K for fiscal year 2021. The adoption of this standard is not expected to have a material impact on the Company's financial statements or its systems, processes and controls associated with accounting for income taxes.

Reference Rate Reform

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, was issued by the FASB in March 2020. In January 2021, the FASB clarified the scope of that guidance with the issuance of ASU 2021-01, Reference Rate Reform: Scope. ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. ASU 2020-04 may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the potential effects of the adoption of ASU 2020-04.

3. Revenue

The following table disaggregates net sales between product groups and geographic destinations, respectively (in thousands):

Three months endedNine months ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Product groups
Residential pool$330,898 $209,519 $990,977 $567,575 
Commercial pool7,360 4,762 23,297 16,872 
Industrial flow control12,366 10,204 35,135 30,257 
Total$350,624 $224,485 $1,049,409 $614,704 
Geographic
United States$261,223 $158,155 $748,726 $428,837 
Canada37,013 25,860 114,550 64,920 
Europe32,726 28,858 137,642 89,600 
Rest of World19,662 11,612 48,491 31,347 
Total international revenue$89,401 $66,330 $300,683 $185,867 
Total$350,624 $224,485 $1,049,409 $614,704 

4. Inventories

Inventories, net, consist of the following (in thousands):
October 2, 2021December 31, 2020
Raw materials$101,370 $67,867 
Work in progress18,886 13,539 
Finished goods88,737 63,924 
Total$208,993 $145,330 

8

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

5. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):
October 2, 2021December 31, 2020
Selling, promotional, and advertising$29,269 $25,377 
Employee compensation and benefits45,568 34,250 
Warranty reserve23,668 16,412 
Inventory purchases30,423 13,703 
Insurance reserve11,864 9,779 
Deferred income16,564 11,694 
Payroll and other non-income taxes7,0433,759 
Derivative liability 9,307 
Other accrued liabilities24,11717,538 
$188,516 $141,819 

The Company offers warranties on certain of its products and records an accrual for estimated future claims. Such accruals are based on historical experience and management’s estimate of the level of future claims.

The following table summarizes the warranty reserve activities (in thousands):

Balance at December 31, 2020
$16,412 
Accrual for warranties issued during the period 10,109 
Payments(4,644)
Balance at April 3, 2021
21,877 
Accrual for warranties issued during the period 9,850 
Payments(7,030)
Balance at July 3, 2021
24,697 
Accrual for warranties issued during the period7,796 
Payments(8,825)
Balance at October 2, 2021
$23,668 

Warranty expenses for the three and nine months ended October 2, 2021 were $7.8 million and $27.8 million, respectively, and $7.1 million and $19.1 million, respectively, for the three and nine months ended September 26, 2020.

6. Income Taxes

The Company's effective tax rate for the three months ended October 2, 2021 and three months ended September 26, 2020 were 22.2% and 26.5% respectively. The change in the Company’s effective tax rate was primarily due to a Global Intangible Low Tax Income ("GILTI") inclusion, changes in the relative taxable income between tax jurisdictions, and several discrete items in 2021 relating to: (i) changes in state tax rates and tax return to provision adjustments, and (ii) a tax benefit due to the exercise of stock options.

The Company's effective tax rate for the nine months ended October 2, 2021 and nine months ended September 26, 2020 were 23.1% and 25.2%, respectively. The change in the Company’s effective tax rate was primarily due to a GILTI inclusion, additional tax benefits related to Foreign Derived Intangible Income, and several discrete items relating to: (i) changes in state tax rates and tax return to provision adjustments, (ii) a tax expense due to accelerated vesting of performance based grants due to the IPO, (iii) a tax benefit due to the release of the valuation allowance on the deferred tax assets of a France subsidiary, and (iv) a tax benefit due to the exercise of stock options.

9

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

The Company will recognize a tax benefit in the financial statements for an uncertain tax position only if the Company's assessment is that the position is "more likely than not" (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term "tax position" refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes. There were no uncertain tax positions at October 2, 2021 and $0.3 million at September 26, 2020.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Management evaluates the need for valuation allowances on the deferred tax assets according to the provisions of ASC 740, Income Taxes. In making this determination, the Company assesses all available evidence (positive and negative) including recent earnings, internally-prepared income tax projections, and historical financial performance.

7. Long-Term Debt, net

Long-term debt, net, consists of the following (in thousands):
October 2, 2021December 31, 2020
First Lien Term Facility, due May 28, 2028$997,500 $957,985 
Incremental First Lien Term Facility, due August 4, 2026 150,000 
Second Lien Term Facility 205,000 
ABL Revolving Credit Facility  
Capital lease obligations9,071 9,732 
Subtotal1,006,571 1,322,717 
Less: Current portion of the long-term debt(11,992)(2,768)
Less: Unamortized debt issuance costs(18,461)(19,693)
Total$976,118 $1,300,256 

The Company made $8.0 million and $356.6 million of voluntary term loan repayments on February 19, 2021 and March 19, 2021, respectively. The total voluntary loan repayments made in the nine months ended October 2, 2021 was $364.6 million. The March 19, 2021 repayment was funded with the net proceeds received from the IPO, of which (i) $205.0 million was used to repay in full outstanding borrowings under the Company's Second Lien Term Facility, (ii) $