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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
__________________________
FORM 10-Q
__________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended October 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: 001-37760

site-20211003_g1.jpg

SiteOne Landscape Supply, Inc.

(Exact name of registrant as specified in its charter)
__________________________
Delaware46-4056061
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)

300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076
(Address of principal executive offices) (Zip Code)
 
(470) 277-7000
(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, $0.01 par value per shareSITENew 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated 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 Exchange Act).    Yes  ☐    No   
 
Title of each classShares Outstanding as of October 29, 2021
Common Stock, $0.01 par value per share44,700,606



1

Regarding Forward-Looking Statements and Information
This Quarterly Report on Form 10-Q, other periodic reports filed by us under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other written or oral statements made from time to time by our management contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “project,” “potential,” or the negative of these terms, and similar expressions often signify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that are beyond our control, and because they also relate to the future, they are likewise subject to inherent uncertainties and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. Factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following:
cyclicality in residential and commercial construction markets;
economic downturn or recession;
general economic and financial conditions;
climate change-related events, weather conditions, seasonality, and availability of water to end-users;
the potential negative impact of the ongoing COVID-19 pandemic (which, among other things, may exacerbate each of the forward-looking statements discussed here);
public perceptions that our products and services are not environmentally friendly;
competitive industry pressures, including competition for our talent base;
cybersecurity incidents, including the July 2020 ransomware attack;
supply chain disruptions, product shortages, and the loss of key suppliers;
product price fluctuations;
ability to pass along product cost increases;
inventory management risks;
ability to implement our business strategies and achieve our growth objectives;
acquisition and integration risks;
inflation and increased operating costs;
risks associated with our large labor force (including work stoppages due to COVID-19 and ongoing labor market disruptions);
retention of key personnel;
construction defect and product liability claims;
impairment of goodwill;
adverse credit and financial markets events and conditions;
credit sale risks;
performance of individual branches;
climate, environmental, health and safety laws and regulations;
hazardous materials and related materials;
laws and government regulations applicable to our business that could negatively impact demand for our products;
failure or malfunctions in our information technology systems;
security of personal information about our customers;
intellectual property and other proprietary rights;
unanticipated changes in our tax provisions;
threats from terrorism, public health emergencies, violence or uncertain political conditions;
our substantial indebtedness and our ability to obtain financing in the future;
increases in interest rates;
risks related to our common stock; and
risks related to other factors discussed in this Quarterly Report on Form 10-Q.





You should not place undue reliance on any forward-looking statements, which speak only as of the date made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible to predict all of them. We assume no obligation and do not intend to update or revise any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law.

Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.


PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)

SiteOne Landscape Supply, Inc.
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
AssetsOctober 3, 2021January 3, 2021
Current assets:
Cash and cash equivalents$158.0 $55.2 
Accounts receivable, net of allowance for doubtful accounts of $11.1 and $9.1, respectively
416.2 292.8 
Inventory, net628.9 458.6 
Income tax receivable3.4 6.8 
Prepaid expenses and other current assets49.0 38.2 
Total current assets1,255.5 851.6 
Property and equipment, net (Note 5)
140.3 130.0 
Operating lease right-of-use assets, net (Note 7)
265.3 256.5 
Goodwill (Note 6)
278.4 250.6 
Intangible assets, net (Note 6)
202.1 196.3 
Deferred tax assets 2.2 2.4 
Other assets8.0 8.3 
Total assets$2,151.8 $1,695.7 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$295.3 $172.8 
Current portion of finance leases (Note 7)
10.4 9.2 
Current portion of operating leases (Note 7)
58.5 54.6 
Accrued compensation81.4 69.2 
Long-term debt, current portion (Note 9)
4.7 2.8 
Accrued liabilities90.0 60.0 
Total current liabilities540.3 368.6 
Other long-term liabilities17.2 25.3 
Finance leases, less current portion (Note 7)
33.6 32.4 
Operating leases, less current portion (Note 7)
213.9 208.3 
Deferred tax liabilities 6.4 5.4 
Long-term debt, less current portion (Note 9)
317.7 260.7 
Total liabilities1,129.1 900.7 
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, par value $0.01; 1,000,000,000 shares authorized; 44,692,062 and 44,300,380 shares issued, and 44,671,151 and 44,279,469 shares outstanding at October 3, 2021 and January 3, 2021, respectively
0.4 0.4 
Additional paid-in capital557.0 541.8 
Retained earnings470.0 259.1 
Accumulated other comprehensive loss(4.7)(6.3)
Total stockholders' equity1,022.7 795.0 
Total liabilities and stockholders' equity$2,151.8 $1,695.7 
See Notes to Consolidated Financial Statements (Unaudited).
4

SiteOne Landscape Supply, Inc.
Consolidated Statements of Operations (Unaudited)
(In millions, except share and per share data)

Three Months EndedNine Months Ended
October 3, 2021September 27, 2020October 3, 2021September 27, 2020
Net sales$936.4 $751.9 $2,670.5 $2,029.4 
Cost of goods sold595.9 501.8 1,740.3 1,350.4 
Gross profit340.5 250.1 930.2 679.0 
Selling, general and administrative expenses235.3 183.3 653.4 525.4 
Other (income) expense, net1.8 (1.8)(1.6)(4.0)
Operating income103.4 68.6 278.4 157.6 
Interest and other non-operating expenses, net4.3 6.6 14.1 21.9 
Net income before taxes99.1 62.0 264.3 135.7 
Income tax expense19.1 13.8 53.4 25.9 
Net income$80.0 $48.2 $210.9 $109.8 
Net income per common share:
Basic$1.79 $1.11 $4.74 $2.59 
Diluted$1.74 $1.08 $4.61 $2.52 
Weighted average number of common shares outstanding:
Basic44,645,126 43,316,470 44,511,675 42,344,567 
Diluted45,849,338 44,561,488 45,762,387 43,573,559 
See Notes to Consolidated Financial Statements (Unaudited).

5


SiteOne Landscape Supply, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
Three Months EndedNine Months Ended
October 3, 2021September 27, 2020October 3, 2021September 27, 2020
Net income$80.0 $48.2 $210.9 $109.8 
Other comprehensive income (loss):
Foreign currency translation adjustments(0.6)0.3 (0.1)(0.2)
Interest rate swaps - net unrealized gains (losses) and reclassifications into earnings, net of taxes of $(0.2), $(0.3), $(0.5), and $0.8, respectively
0.8 1.0 1.7 (2.5)
Total other comprehensive income (loss)0.2 1.3 1.6 (2.7)
Comprehensive income$80.2 $49.5 $212.5 $107.1 
See Notes to Consolidated Financial Statements (Unaudited).

6


SiteOne Landscape Supply, Inc.
Consolidated Statements of Equity (Unaudited)
(In millions, shares in thousands)

Common 
Stock
Shares
Common 
Stock
Amount
Additional
Paid-in-Capital
Retained EarningsAccumulated 
Other
Comprehensive
Loss
Total Equity
Balance at January 3, 202144,279.5 $0.4 $541.8 $259.1 $(6.3)$795.0 
Net income— — — 7.4 — 7.4 
Other comprehensive income— — — — 1.1 1.1 
Issuance of common shares under stock-based compensation plan114.2 — (1.1)— — (1.1)
Stock-based compensation— — 3.1 — — 3.1 
Balance at April 4, 202144,393.7 $0.4 $543.8 $266.5 $(5.2)$805.5 
Net income— — — 123.5 — 123.5 
Other comprehensive income— — — — 0.3 0.3 
Issuance of common shares under stock-based compensation plan123.2 — 2.7 — — 2.7 
Stock-based compensation— — 4.6 — — 4.6 
Balance at July 4, 202144,516.9 $0.4 $551.1 $390.0 $(4.9)$936.6 
Net income— — — 80.0 — 80.0 
Other comprehensive income— — — — 0.2 0.2 
Issuance of common shares under stock-based compensation plan154.3 — 2.4 — — 2.4 
Stock-based compensation— — 3.5 — — 3.5 
Balance at October 3, 202144,671.2 $0.4 $557.0 $470.0 $(4.7)$1,022.7 
Common 
Stock
Shares
Common 
Stock
Amount
Additional
Paid-in-Capital
Retained EarningsAccumulated 
Other
Comprehensive
Loss
Total Equity
Balance at December 29, 201941,570.8 $0.4 $261.5 $137.8 $(6.5)$393.2 
Net loss— — — (17.5)— (17.5)
Other comprehensive loss— — — — (4.7)(4.7)
Issuance of common shares under stock-based compensation plan291.6 — 4.0 — — 4.0 
Stock-based compensation— — 2.5 — — 2.5 
Balance at March 29, 202041,862.4 $0.4 $268.0 $120.3 $(11.2)$377.5 
Net income— — — 79.1 — 79.1 
Other comprehensive income— — — — 0.7 0.7 
Issuance of common shares under stock-based compensation plan115.6 — 2.2 — — 2.2 
Stock-based compensation— — 2.8 — — 2.8 
Balance at June 28, 202041,978.0 $0.4 $273.0 $199.4 $(10.5)$462.3 
Net income— — — 48.2 — 48.2 
Other comprehensive income— — — — 1.3 1.3 
Issuance of common stock in public offering, net of issuance costs2,150.0 — 261.7 — — 261.7 
Issuance of common shares under stock-based compensation plan85.0 — 1.1 — — 1.1 
Stock-based compensation— — 2.6 — — 2.6 
Balance at September 27, 202044,213.0 $0.4 $538.4 $247.6 $(9.2)$777.2 
See Notes to Consolidated Financial Statements (Unaudited).
7

SiteOne Landscape Supply, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Nine Months Ended
October 3, 2021September 27, 2020
Cash Flows from Operating Activities:
Net income$210.9 $109.8 
Adjustments to reconcile Net income to net cash provided by operating activities:
Amortization of finance lease right-of-use assets and depreciation25.8 21.5 
Stock-based compensation11.2 7.9 
Amortization of software and intangible assets34.9 27.5 
Amortization of debt related costs1.1 1.5 
Loss on extinguishment of debt0.8  
Gain on sale of equipment(0.3)(0.2)
Other3.8 1.9 
Changes in operating assets and liabilities, net of the effects of acquisitions:
Receivables(118.0)(34.6)
Inventory(159.5)(35.8)
Income tax receivable3.4 5.3 
Prepaid expenses and other assets(10.7)(12.3)
Accounts payable117.5 54.8 
Accrued expenses and other liabilities38.5 33.4 
Net Cash Provided By Operating Activities$159.4 $180.7 
Cash Flows from Investing Activities:
Purchases of property and equipment(24.2)(11.8)
Purchases of intangible assets(3.7)(2.3)
Acquisitions, net of cash acquired(71.1)(73.5)
Proceeds from the sale of property and equipment1.7 0.7 
Net Cash Used In Investing Activities$(97.3)$(86.9)
Cash Flows from Financing Activities:
Equity proceeds from common stock7.3 270.8 
Borrowings under term loan325.0  
Repayments under term loan(270.6)(3.4)
Borrowings on asset-based credit facility161.9 285.4 
Repayments on asset-based credit facility(161.9)(378.2)
Payments of debt issuance costs(2.4) 
Payments on finance lease obligations(7.7)(6.2)
Payments of acquisition related contingent obligations(6.8)(4.8)
Other financing activities(4.2)(1.7)
Net Cash Provided By Financing Activities$40.6 $161.9 
Effect of exchange rate on cash0.1 (0.1)
Net Change In Cash102.8 255.6 
8


Cash and cash equivalents:
Beginning55.2 19.0 
Ending$158.0 $274.6 
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest$12.2 $20.5 
Cash paid during the year for income taxes$50.3 $17.9 
See Notes to Consolidated Financial Statements (Unaudited).

9


SiteOne Landscape Supply, Inc.
Notes to Consolidated Financial Statements
(Unaudited)



10

Note 1.    Nature of Business and Significant Accounting Policies

Nature of Business

SiteOne Landscape Supply, Inc. (hereinafter collectively with all its consolidated subsidiaries referred to as the “Company” or individually as “Holdings”) is a wholesale distributor of irrigation supplies, fertilizer and control products (e.g., herbicides), hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, outdoor lighting, and ice melt products to green industry professionals. The Company also provides value-added consultative services to complement its product offering and to help customers operate and grow their businesses. Substantially all of the Company’s sales are to customers located in the United States of America (“U.S.”), with less than four percent of sales and less than five percent of total assets in Canada for all periods presented. As of October 3, 2021, the Company had over 590 branches. Based on the nature of the Company’s products and customers’ business cycles, sales have been significantly higher in the second and third quarters of each fiscal year.

Stock Offering

On August 3, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with BofA Securities, Inc. (the “Underwriter”), relating to an underwritten public offering of 2,150,000 shares of the Company’s common stock, $0.01 par value per share (the “Common Stock”). Under the terms of the Underwriting Agreement, the Company granted the Underwriter an option, exercisable for 30 days, to purchase up to an additional 322,500 shares of Common Stock. The Underwriter did not exercise the option to purchase additional shares of Common Stock. The aggregate proceeds to the Company from the sale of shares of Common Stock in the offering were approximately $262.3 million before expenses of approximately $0.6 million. The offering closed on August 6, 2020. The Company has used a portion of the proceeds and intends to use the remaining net proceeds from the offering for general corporate purposes, which may include the acquisition of companies or businesses, the repayment and refinancing of debt, working capital, and capital expenditures.

The shares of Common Stock sold in the offering were issued pursuant to an automatically effective shelf registration statement on Form S-3ASR (Registration No. 333-240295) and the related prospectus that was filed with the Securities and Exchange Commission (“SEC”) on August 3, 2020, and a related prospectus supplement, dated August 3, 2020.

COVID-19 Pandemic

As a result of the ongoing novel coronavirus (or “COVID-19”) pandemic, the Company could experience impacts including, but not limited to, charges from potential adjustments of the carrying amounts of receivables and inventory, goodwill and other asset impairment charges, or deferred tax valuation allowances. There has been no material adverse impact to the Company’s consolidated financial statements for the three and nine months ended October 3, 2021; however, the extent to which the COVID-19 pandemic impacts the Company's business, results of operations, and financial condition will depend on future developments, which remain highly uncertain and cannot be predicted, including, but not limited to the duration, spread, and severity, of the COVID-19 pandemic, including the emergence of variant strains of the virus, the effects of the COVID-19 pandemic on the Company's customers, suppliers, vendors, and associates and the remedial actions and stimulus measures adopted by local, state, and federal governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, the Company may experience an impact to its business as a result of any economic downturn, recession, or depression that has occurred or may occur in the future.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted which included measures to assist companies in response to the COVID-19 pandemic. In accordance with the CARES Act, the Company deferred the payment of qualifying employer payroll taxes during the fiscal year ended January 3, 2021 which are required to be paid over two years, with 50 percent to be paid by December 31, 2021 and the remainder by December 31, 2022. As of October 3, 2021, the Company has $12.2 million of qualifying employer payroll taxes included in its Consolidated Balance Sheets, of which $6.1 million is included in Accrued compensation and $6.1 million is included in Other long-term liabilities.

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Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as applicable to interim financial reporting. In management’s opinion, the unaudited financial information for the interim periods presented includes all adjustments, consisting of normal recurring accruals necessary for a fair statement of the financial position, results of operations, and cash flows. Certain information and disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended January 3, 2021. The interim period unaudited financial results for the three and nine-month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ materially from these estimates.

Fiscal Year

The Company’s fiscal year is a 52- or 53-week period ending on the Sunday nearest to December 31. The fiscal year ending January 2, 2022 includes 52 weeks and the fiscal year ended January 3, 2021 included 53 weeks. The three months ended October 3, 2021 and September 27, 2020 both included 13 weeks. The nine months ended October 3, 2021 and September 27, 2020 both included 39 weeks.

Principles of Consolidation

The Company’s consolidated financial statements include the assets and liabilities used in operating the Company’s business, including entities in which the Company owns or controls more than 50% of the voting shares. All of the Company’s subsidiaries are wholly owned. All intercompany balances and transactions have been eliminated in consolidation.

Significant Accounting Policies

Except as updated immediately below and by the Recently Issued and Adopted Accounting Pronouncements section, a description of the Company’s significant accounting policies is included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2021.

Interest rate swaps and hybrid debt instruments: The Company is subject to interest rate risk with regard to existing and future issuances of debt. The Company utilizes interest rate swap contracts to reduce its exposure to fluctuations in variable interest rates for future interest payments on existing debt. The Company has also amended and restructured its interest rate swap contracts using a strategy commonly referred to as a “blend and extend”. In a blend and extend arrangement, the liability position of the existing interest rate swap arrangement is effectively blended into the amended or new interest rate swap arrangement and the term to maturity of the hedged position is extended. The Company evaluates its blend and extend arrangements under Accounting Standards Codification (“ASC”), Topic 815: Derivatives and Hedging to determine if they are stand-alone derivative instruments or hybrid instruments.

Recently Issued and Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments,” amended by subsequent ASUs (collectively, “ASU 2016-13”), which changed the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities are required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also required enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. The Company adopted ASU 2016-13 when it became effective in the first quarter of fiscal year 2020. The adoption of ASU 2016-13 did not have a material impact on its consolidated financial statements and related disclosures.

12

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which changed the fair value measurement disclosure requirements of ASC Topic 820. The ASU added new disclosure requirements and eliminated and modified existing disclosure requirements. Entities are no longer required to disclose the reasons for and amounts of transfers between Level 1 and Level 2 of the fair value hierarchy, but entities are required to disclose the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU 2018-13 when it became effective in the first quarter of fiscal year 2020. The adoption of ASU 2018-13 did not have a material impact on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The amendments in ASU 2019-12 simplified the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes. The amendments also improved consistent application of and simplified U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. ASU 2019-12 required adoption on either a prospective or retrospective basis, dependent upon each amendment within this update. The Company adopted ASU 2019-12 when it became effective in the first quarter of fiscal year 2021. The adoption of ASU 2019-12 did not have a material impact on its consolidated financial statements and related disclosures.

Accounting Pronouncements Issued But Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are effective upon issuance and 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 amended guidance and the impact on its consolidated financial statements and related disclosures.

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”) to amend the scope of the guidance in ASU 2020-04 on the facilitation of the effects of reference rate reform on financial reporting. Specifically, the amendments in ASU 2021-01 clarify that “certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting can apply to derivatives that are affected by the discounting transition”. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.

13

Note 2.    Revenue from Contracts with Customers
The following table presents Net sales disaggregated by product category (in millions):
Three Months EndedNine Months Ended
 October 3, 2021September 27, 2020October 3, 2021September 27, 2020
Landscaping products(a)
$696.1 $550.2 $1,984.7 $1,475.9 
Agronomic and other products(b)
240.3 201.7 685.8 553.5 
$936.4 $751.9 $2,670.5 $2,029.4 
______________
(a)    Landscaping products include irrigation supplies, hardscapes, landscape accessories, nursery goods, and outdoor lighting.
(b)    Agronomic and other products include fertilizer, control products, ice melt, equipment, and other products.

Remaining Performance Obligations

Remaining performance obligations related to ASC Topic 606 represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year that are fully or partially unsatisfied at the end of the period. Remaining performance obligations include the outstanding points balance related to the customer loyalty reward program. The program allows enrolled customers to earn loyalty rewards on purchases to be used on future purchases, to pay for annual customer trips hosted by the Company, or to obtain gift cards to other third-party retailers.

As of October 3, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $10.8 million. The Company expects to recognize revenue on the remaining performance obligations over the next 12 months.

Contract Balances

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, deferred revenue, and billings in excess of revenue recognized in the Company’s Consolidated Balance Sheets.

Contract liabilities

As of October 3, 2021 and January 3, 2021, contract liabilities were $10.8 million and $5.7 million, respectively, and were included within Accrued liabilities in the accompanying Consolidated Balance Sheets. The increase in the contract liability balance during the nine months ended October 3, 2021 is primarily a result of cash payments received in advance of satisfying performance obligations, partially offset by $3.3 million of revenue recognized and the expiration of points related to the customer loyalty reward program during the period.
14


Note 3.    Acquisitions

From time to time, the Company enters into strategic acquisitions in an effort to better service existing customers and to attract new customers. The Company completed the following acquisitions for an aggregate purchase price of $71.1 million and $74.6 million and deferred contingent consideration of $4.8 million and $7.0 million for the nine months ended October 3, 2021 and September 27, 2020, respectively.

In August 2021, the Company acquired the assets and assumed the liabilities of Green Brothers Earth Works and Southern Landscape Supply (“Green Brothers”). With four locations in the greater Atlanta, Georgia market, Green Brothers is a distributor of landscape supplies and hardscapes to landscape professionals.
In May 2021, the Company acquired all of the outstanding stock of Rodvold Enterprises, Inc., doing business as Rock & Block Hardscape Supply (“Rock & Block”). With two locations in the San Diego, Southern Orange County and Inland Empire markets in California, Rock & Block is a distributor of hardscapes, masonry, and landscape supplies to landscape professionals.
In April 2021, the Company acquired the assets and assumed the liabilities of Melrose Supply & Sales Corp (“Melrose”). With six locations throughout Florida, Melrose is a distributor of irrigation, lighting, and drainage products to landscape professionals.
In April 2021, the Company acquired all of the outstanding stock of Timberwall Landscape & Masonry Products, Inc. (“Timberwall”). With one location in Victoria, Minnesota, Timberwall is a distributor of hardscapes and landscape supplies to landscape professionals.
In April 2021, the Company acquired the assets and assumed the liabilities of Arizona Stone & Architectural Products and Solstice Stone (“Arizona Stone and Solstice”). With seven locations throughout Arizona and two locations in the Las Vegas, Nevada market, Arizona Stone and Solstice is a distributor of hardscapes, natural stone, and landscape supplies to landscape professionals.
In February 2021, the Company acquired the assets and assumed the liabilities of Lucky Landscape Supply, LLC (“Lucky Landscape Supply”). With one location in the greater Houston, Texas market, Lucky Landscape Supply is a distributor of nursery products to landscape professionals.
In December 2020, the Company acquired the assets and assumed the liabilities of Stone Center of Richmond, LLC and Stone Center of Fredericksburg, LLC (collectively, “Stone Center of Virginia”). With two locations in each of the Richmond and Fredericksburg, Virginia markets, Stone Center of Virginia is a distributor of hardscapes, natural stone, and landscape supplies to landscape professionals.
In December 2020, the Company acquired the assets and assumed the liabilities of Dirt and Rock, LLC (“Dirt and Rock”). With one location in the greater Atlanta, Georgia market, Dirt and Rock is a distributor of hardscapes, natural stone, and landscape supplies to landscape professionals.
In December 2020, the Company acquired the assets and assumed the liabilities of Alpine Materials (“Alpine”). With one location in the greater Dallas, Texas market, Alpine is a distributor of mulches, soils, and hardscape materials to landscape professionals.
In October 2020, the Company acquired the assets and assumed the liabilities of Hedberg Supply (“Hedberg”). With two locations in the Twin Cities, Minnesota market, Hedberg is a distributor of hardscapes, nursery, and landscape supplies to landscape professionals.
In October 2020, the Company acquired the assets and assumed the liabilities of BURNCO Landscape Centres Inc. (“BURNCO”). With 12 locations in the three Canadian provinces of British Columbia, Alberta, and Saskatchewan, BURNCO is a distributor of hardscapes and landscape supplies to landscape professionals.
In August 2020, the Company acquired all of the outstanding stock of Modern Builders Supply, Inc. (“Modern Builders”). With two locations in the San Diego, Southern Orange County and Inland Empire markets in California, Modern Builders is a distributor of hardscapes and landscape supplies to landscape professionals.
In August 2020, the Company acquired the assets and assumed the liabilities of Alliance Stone (“Alliance Stone”). With one location in the greater Atlanta, Georgia market, Alliance Stone is a distributor of hardscapes and natural stone to landscape professionals.
In March 2020, the Company acquired the assets and assumed the liabilities of Big Rock Natural Stone and Hardscapes, Inc. (“Big Rock”). With one location in the greater Greenville, South Carolina market, Big Rock is a distributor of hardscapes and landscape supplies to landscape professionals.
15

In January 2020, the Company acquired the assets and assumed the liabilities of The Garden Dept. Corp. (“Garden Dept.”). With three locations in the greater Long Island, New York market, Garden Dept. is a distributor of nursery and landscape supplies to landscape professionals.
In January 2020, the Company acquired the assets and assumed the liabilities of Empire Supplies (“Empire”). With three locations in the greater Newark-Union, New Jersey market, Empire is a distributor of hardscapes and landscape supplies to landscape professionals.
In January 2020, the Company acquired the assets and assumed the liabilities of Wittkopf Landscape Supply (“Wittkopf”). With two locations in the Spokane Valley, Washington market, Wittkopf is a distributor of hardscapes and landscape supplies to landscape professionals.

These transactions were accounted for by the acquisition method, and accordingly, the results of operations were included in the Company’s consolidated financial statements from their respective acquisition dates.

16


Note 4.    Fair Value Measurement and Interest Rate Swaps
Fair value is defined as an exit price, representing an amount that would be received to sell an asset or the amount paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The inputs used to measure fair value are prioritized into the following three-tiered value hierarchy:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or inputs, other than quoted prices in active markets, which are observable either directly or indirectly.
Level 3: Unobservable inputs for which there is little or no market data.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The classification of fair value measurement within the hierarchy is based upon the lowest level of input that is significant to the measurement.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivables, forward-starting interest rate swap contracts, interest rate swap contracts, and long-term debt. The variable interest rate on the long-term debt is reflective of current market borrowing rates. As such, the Company has determined that the carrying value of these financial instruments approximates fair value.
Interest Rate Swaps
The Company is subject to interest rate risk with regard to existing and future issuances of debt. The Company utilizes interest rate swap contracts to reduce its exposure to fluctuations in variable interest rates for future interest payments on existing debt. The Company is party to forward-starting interest rate swap contracts and interest rate swap contracts to convert the variable interest rate to a fixed interest rate on the borrowings under the term loans.
The Company recognizes any differences between the variable interest rate payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense over the life of the swaps. The Company has designated these swaps as cash flow hedges and records the estimated fair value of the swaps to Accumulated other comprehensive income (loss) (“AOCI”) on its Consolidated Balance Sheets. If it becomes probable the forecasted transactions will not occur, the hedge relationship will be de-designated and amounts accumulated in AOCI will be reclassified to Interest and other non-operating expenses, net in the current period.
On March 23, 2021, the Company restructured the interest rate swap positions of its Forward-starting interest rate swaps 4, 5, and 6 to extend the terms to maturity using a strategy commonly referred to as a “blend and extend” in order to continue to manage its exposure to interest rate risk on borrowings under the term loans. Refer to “Note 9. Long-Term Debt” for additional information regarding the Company’s term loans. As a result of these transactions, all existing agreements for Forward-starting interest rate swaps 4, 5, and 6 were amended and restructured as new agreements designated by the Company as Interest rate swaps 7, 8, and 9 with the same counterparties. Each of the amended Interest rate swap agreements mature on March 23, 2025 and effectively blended the liability positions of the Forward-starting interest rate swaps into the Interest rate swaps and extended the term of the hedged positions. The Interest rate swaps are indexed to three-month LIBOR and net settled on a quarterly basis with the counterparties for the difference between the fixed rates and the variable rates based upon three-month LIBOR (subject to a floor of 0.50%) as applied to the notional amounts of each Interest rate swap. Due to the size of the initial net investment amounts resulting from the termination values of the Forward-starting interest rate swaps that were rolled into the Interest rate swap arrangements, Interest rate swaps 7, 8, and 9 were determined to be hybrid debt instruments containing embedded at-market interest rate swap derivatives. As a result, the Company bifurcated the derivative instruments from the debt host instruments for accounting purposes. Refer to “Note 1. Nature of Business and Significant Accounting Policies” and “Note 9. Long-Term Debt” for additional information regarding the Company’s hybrid debt instruments.
The Company also de-designated the hedging relationships for Forward-starting interest rate swaps 1 and 2 on March 23, 2021. The swaps were not terminated upon de-designation; however, hedge accounting was discontinued since these swaps were no longer designated as hedging instruments. The related accumulated losses for these swaps remained in AOCI and were recognized in earnings at the time the hedged interest payments impacted earnings.
17

The following table provides additional information related to the swap contracts designated as hedging instruments as of October 3, 2021:

Derivatives designated as hedging instrumentsInception DateEffective DateMaturity DateNotional Amount
(in millions)
Fixed Interest RateType of Hedge
Forward-starting interest rate swap 3December 17, 2018July 14, 2020January 14, 2024$34.0 2.93450 %Cash flow
Interest rate swap 7March 23, 2021March 23, 2021March 23, 2025$50.0 0.99500 %Cash flow
Interest rate swap 8March 23, 2021March 23, 2021March 23, 2025$90.0 0.98600 %Cash flow
Interest rate swap 9March 23, 2021March 23, 2021March 23, 2025$70.0 0.99784 %Cash flow

The following table provides additional information related to the swap contracts not designated as hedging instruments, which were terminated upon maturity on June 11, 2021:

Derivatives not designated as hedging instrumentsInception DateEffective DateMaturity DateNotional Amount
(in millions)
Fixed Interest Rate
Forward-starting interest rate swap 1June 30, 2017March 11, 2019June 11, 2021$58.0 2.13450 %
Forward-starting interest rate swap 2June 30, 2017March 11, 2019June 11, 2021$116.0 2.15100 %

The Company recognizes the unrealized gains or unrealized losses as either assets or liabilities at fair value on its Consolidated Balance Sheets. The interest rate swap contracts are subject to master netting arrangements. The Company has elected not to offset the fair value of assets with the fair value of liabilities related to these contracts. The following tables summarize the fair value of the derivative instruments and the respective lines in which they were recorded in the Consolidated Balance Sheets as of October 3, 2021 and January 3, 2021 (in millions):

Derivative Assets
October 3, 2021January 3, 2021
Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as hedging instruments
Interest rate contractsOther assets$0.6 Other assets$ 
Total derivative assets$0.6 $ 

Derivative Liabilities
October 3, 2021January 3, 2021
Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as hedging instruments
Interest rate contractsAccrued liabilities$1.5 Accrued liabilities$2.2 
Other long-term liabilities0.9 Other long-term liabilities2.6 
Derivatives not designated as hedging instruments
Interest rate contractsAccrued liabilities$ Accrued liabilities$1.7 
Other long-term liabilities Other long-term liabilities2.6 
Total derivative liabilities$2.4 $9.1 

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For determining the fair value of the interest rate swap contracts, the Company uses significant observable market data or assumptions (Level 2 inputs) that market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. The fair value estimates reflect an income approach based on the terms of the interest rate swap contracts and inputs corroborated by observable market data including interest rate curves.

For the three and nine months ended October 3, 2021 and September 27, 2020, there was no ineffectiveness recognized in earnings. The after-tax amount of unrealized loss on derivative instruments included in Accumulated other comprehensive loss related to the interest rate swap contracts expected to be reclassified to earnings during the next twelve months was $3.4 million as of October 3, 2021. The ultimate amount recognized will vary based on fluctuations of interest rates through the maturity dates.

The tables below detail pre-tax amounts in AOCI and gain (loss) reclassified into income for derivatives designated as cash flow hedges for the three and nine months ended October 3, 2021 and September 27, 2020 (in millions):

Three Months Ended
October 3, 2021September 27, 2020
Derivatives in Cash Flow Hedging RelationshipsGain (Loss) Recorded in OCIClassification of Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Reclassified from AOCI into IncomeGain (Loss) Recorded in OCIClassification of Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Reclassified from AOCI into Income
Interest rate contracts$(0.2)Interest and other non-operating expenses, net$(0.5)$1.3 Interest and other non-operating expenses, net$(1.4)

Nine Months Ended
October 3, 2021September 27, 2020
Derivatives in Cash Flow Hedging RelationshipsGain (Loss) Recorded in OCIClassification of Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Reclassified from AOCI into IncomeGain (Loss) Recorded in OCIClassification of Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Reclassified from AOCI into Income
Interest rate contracts$(1.2)Interest and other non-operating expenses, net$(1.8)$(3.3)Interest and other non-operating expenses, net$(3.1)

The tables below detail gain (loss) recorded in income and reclassified from AOCI into income for derivatives not designated as hedging instruments for the three and nine months ended October 3, 2021 and September 27, 2020 (in millions):

Three Months Ended
Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Recognized in Income
Derivatives not designated as hedging instrumentsLocation of Gain (Loss)October 3, 2021September 27, 2020October 3, 2021September 27, 2020
Interest rate contractsInterest and other non-operating expenses, net$(0.7)$ $ $ 

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Nine Months Ended
Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Recognized in Income
Derivatives not designated as hedging instrumentsLocation of Gain (Loss)October 3, 2021September 27, 2020October 3, 2021September 27, 2020
Interest rate contractsInterest and other non-operating expenses, net$(1.6)$ $(0.1)$ 

Failure of the swap counterparties to make payments would result in the loss of any potential benefit to the Company under the swap agreements. In this case, the Company would still be obligated to pay the variable interest payments underlying the debt agreements. Additionally, failure of the swap counterparties would not eliminate the Company’s obligation to continue to make payments under the existing swap agreements if it continues to be in a net pay position.


Note 5.    Property and Equipment, Net

Property and equipment consisted of the following (in millions):
October 3, 2021January 3, 2021
Land$12.2 $12.2 
Buildings and leasehold improvements:
Buildings7.8 7.8 
Leasehold improvements35.0 31.0 
Branch equipment72.3 58.6 
Office furniture and fixtures and vehicles:
Office furniture and fixtures23.4 22.4 
Vehicles32.7 32.0 
Finance lease right-of-use assets73.5 64.5 
Tooling0.1 0.1 
Construction in progress7.9 5.3 
Total property and equipment, gross264.9 233.9 
Less: accumulated depreciation and amortization124.6 103.9 
Total property and equipment, net$140.3 $130.0 

Amortization of finance right-of-use (“ROU”) assets and depreciation expense was $8.9 million and $25.8 million for the three and nine months ended October 3, 2021, and $7.3 million and $21.5 million for the three and nine months ended September 27, 2020, respectively.

Capitalized software has an estimated useful life of three years. The amounts of total capitalized software costs, including purchased and internally developed software, included in Other assets as of October 3, 2021 and January 3, 2021 were $12.7 million and $12.9 million, less accumulated amortization of $10.7 million and $9.4 million, respectively. Amortization of these software costs was $0.5 million and $0.5 million for the three months ended October 3, 2021 and September 27, 2020, and $1.3 million and $1.6 million for the nine months ended October 3, 2021 and September 27, 2020, respectively.


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Note 6.    Goodwill and Intangible Assets, Net
Goodwill

The changes in the carrying amount of goodwill were as follows (in millions):

January 3, 2021
to October 3, 2021
Beginning balance$250.6 
Goodwill acquired during the period26.4 
Goodwill adjusted during the period1.4 
Ending balance$278.4 
Additions to goodwill during the nine months ended October 3, 2021 related to the acquisitions completed in 2021 as described in Note 3.
Intangible Assets

Intangible assets include customer relationships, and trademarks and other intangibles. Intangible assets with finite useful lives are amortized on an accelerated method or a straight-line method over their estimated useful lives. An accelerated amortization method reflecting the pattern in which the asset will be consumed is utilized if that pattern can be reliably determined. If that pattern cannot be reliably determined, a straight-line amortization method is used. The Company considers the period of expected cash flows and underlying data used to measure the fair value of the intangible assets when selecting a useful life.
During the nine months ended October 3, 2021, the Company recorded $39.4 million of intangible assets, including $35.8 million in Customer relationship intangibles and $3.6 million in Trademarks and other intangibles. The change in Customer relationship intangibles and Trademarks and other intangibles included additions of $35.7 million and $3.6 million, respectively, as a result of the acquisitions completed in 2021 as described in Note 3. Updates of purchase price allocations related to prior year acquisitions during the allowable measurement period and currency translation adjustments of Customer relationship intangibles and Trademarks and other intangibles were $0.1 million and zero, respectively.
During the nine months ended September 27, 2020, the Company recorded $36.9 million of intangible assets, including $34.6 million in Customer relationship intangibles and $2.3 million in Trademarks and other intangibles. The change in Customer relationship intangibles and Trademarks and other intangibles included additions of $32.9 million and $2.2 million, respectively, as a result of the acquisitions completed in 2020 as described in Note 3. Adjustments to purchase price allocations related to prior year acquisitions during the allowable measurement period of Customer relationship intangibles and Trademarks and other intangibles were $1.7 million and $0.1 million, respectively.

The Customer relationship intangible assets will be amortized over a weighted-average period of approximately 20 years. The trademarks and other intangible assets recorded will be amortized over a weighted-average period of approximately five years.
The following table summarizes the components of intangible assets (in millions, except weighted average remaining useful life):

October 3, 2021January 3, 2021
Weighted Average Remaining Useful LifeAmountAccumulated AmortizationNetAmountAccumulated AmortizationNet
Customer relationships17.0 years$376.3 $187.2 $189.1 $340.5 $156.9 $183.6 
Trademarks and other3.5 years29.4 16.4 13.0 25.8 13.1 12.7 
Total intangibles$405.7 $203.6 $202.1 $366.3 $170.0 $196.3 

Amortization expense for intangible assets was $11.6 million and $33.6 million for the three and nine months ended October 3, 2021 and $8.5 million and $25.9 million for the three and nine months ended September 27, 2020, respectively.

Total future amortization estimated as of October 3, 2021 is as follows (in millions):

Fiscal year ending:
2021 (remainder)$11.2 
202239.4 
202331.9 
202425.5 
202520.2 
Thereafter73.9 
Total future amortization$202.1 

Note 7.    Leases
The Company determines if an arrangement is a lease at inception of a contract. The Company leases equipment and real estate including office space, branch locations, and distribution centers under operating leases. Finance lease obligations consist primarily of the Company’s vehicle fleet. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one year to five years or more. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases include options to purchase the leased property. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheets. The Company accounts for each separate lease component of a contract and its associated non-lease components as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or lease liabilities and are expensed as incurred and recorded as variable lease expense.

ROU assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term. ROU assets also include any advance lease payments and are adjusted for lease incentives. As most of the Company's operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Finance lease agreements generally include an interest rate that is used to determine the present value of future lease payments. Operating fixed lease expense and finance lease amortization expense are recognized on a straight-line basis over the lease term.

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The components of lease expense were as follows (in millions):
Three Months EndedNine Months Ended
Lease CostClassificationOctober 3, 2021September 27, 2020October 3, 2021September 27, 2020
Finance lease cost
Amortization of right-of-use assetsSelling, general and administrative expenses$2.7 $2.4 $7.9 $6.6 
Interest on lease liabilitiesInterest and other non-operating expenses, net0.4 0.3 1.1 0.9 
Operating lease costCost of goods sold0.8 0.7 2.4 2.3 
Operating lease costSelling, general and administrative expenses18.7 16.0 53.4 48.4 
Short-term lease costSelling, general and administrative expenses0.2 0.5 1.0 1.3 
Variable lease costSelling, general and administrative expenses0.2 0.2 0.7 0.5 
Sublease incomeSelling, general and administrative expenses(0.2)(0.2)(0.8)(0.8)
Total lease cost$22.8 $19.9 $65.7 $59.2 

Supplemental cash flow information related to leases was as follows (in millions):
Three Months EndedNine Months Ended
Other InformationOctober 3, 2021September 27, 2020October 3, 2021September 27, 2020
Cash paid for amounts included in the measurements of lease liabilities
Operating cash flows from finance leases$0.4 $