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Debt | 12 Months Ended
--- | ---
Dec. 31, 2016
Debt Disclosure [Abstract] |
Debt | Debt The table below presents the components of our debt as of December 31, 2016 and December 31, 2015 (in thousands):
|  | December 31,
|  | 2016 |  | 2015
Variable rate debt |  |  |  |
Current portion of long-term debt: |  |  |  |
Australian Seasonal Credit Facility (described below) |  | $ | 1,105 |  |  | $ | 1,700 |
Long-term portion: |  |  |  |
Revolving Credit Facility (described below) |  | 354,549 |  |  | 273,015 |
Receivables Securitization Facility (described below) |  | 83,500 |  |  | 55,000 |
Less: financing costs, net |  | 1,112 |  |  | 1,670 |
Long-term debt, net |  | $ | 436,937 |  |  | $ | 326,345 |
Total debt |  | $ | 438,042 |  |  | $ | 328,045 |
Revolving Credit Facility On November 20, 2014, we, along with our wholly owned subsidiaries, SCP Distributors Canada Inc., as the Canadian Borrower, and SCP Pool B.V., as the Dutch Borrower, executed an amendment to our unsecured syndicated senior credit facility (the Credit Facility). The Credit Facility borrowing capacity remains $465.0 million under a five-year revolving credit facility. On November 20, 2015, we extended the maturity date of the agreement to November 20, 2020. The Credit Facility includes sublimits for the issuance of swingline loans and standby letters of credit. Pursuant to an accordion feature, the aggregate maximum principal amount of the commitments under the Credit Facility may be increased at our request and with agreement by the lenders by up to $75.0 million, to a total of $540.0 million. Our obligations under the Credit Facility are guaranteed by substantially all of our existing and future direct and indirect domestic subsidiaries. The Credit Facility contains terms and provisions (including representations, covenants and conditions) and events of default customary for transactions of this type. If we default under the Credit Facility, the lenders may terminate their commitments under the Credit Facility and may require us to repay all amounts. At December 31, 2016, there was $354.5 million outstanding and $110.5 million available for borrowing, subject to a $4.0 million standby letter of credit outstanding under the Credit Facility. The weighted average effective interest rate for the Credit Facility as of December 31, 2016 was approximately 2.6%, excluding commitment fees. Revolving borrowings under the Credit Facility bear interest, at our option, at either of the following and, in each case, plus an applicable margin:
a. | a base rate, which is the highest of (i) the Wells Fargo Bank, National Association prime rate, (ii) the Federal Funds Rate plus 0.500% and (iii) the London Interbank Offered Rate (LIBOR) Market Index Rate plus 1.000%; or
b. | LIBOR.
Borrowings by the Canadian Borrower bear interest, at the Canadian Borrower’s option, at either of the following and, in each case, plus an applicable margin:
a. | a base rate, which is the greatest of (i) the Canadian Reference Bank prime rate and (ii) the annual rate of interest equal to the sum of the Canadian Dealer Offered Rate (CDOR) plus 1.000%; or
b. | CDOR.
Borrowings by the Dutch Borrower bear interest at LIBOR plus an applicable margin. The interest rate margins on the borrowings and letters of credit are based on our leverage ratio and will range from 1.150% to 1.650% on CDOR, LIBOR and swingline loans, and from 0.150% to 0.650% on Base Rate and Canadian Base Rate loans. Borrowings under the swingline loans are based on the LIBOR Market Index Rate (LMIR) plus any applicable margin. We are also required to pay an annual facility fee ranging from 0.100% to 0.225%, depending on our leverage ratio. Receivables Securitization Facility On October 28, 2016, we and certain of our subsidiaries entered into an amendment of our two-year accounts receivable securitization facility (the Receivables Facility). As amended, the Receivables Facility has a peak seasonal funding capacity of up to $220.0 million between May 1 and June 30, which includes an additional seasonal funding capacity that is available between March 1 and July 31. Other funding capacities range from $65.0 million to $150.0 million throughout the remaining months of the year. The Receivables Facility provides for the sale of certain of our receivables to a wholly owned subsidiary (the Securitization Subsidiary). The Securitization Subsidiary transfers variable undivided percentage interests in the receivables and related rights to certain third party financial institutions in exchange for cash proceeds, limited to the applicable funding capacities. Upon payment of the receivables by customers, rather than remitting to the financial institutions the amounts collected, we retain such collections as proceeds for the sale of new receivables until payments become due to the financial institutions. The Receivables Facility is subject to terms and conditions (including representations, covenants and conditions precedent) customary for transactions of this type. Failure to maintain certain ratios or meet certain of these covenants could trigger an amortization event. At December 31, 2016, there was $83.5 million outstanding under the Receivables Facility at a weighted average effective interest rate of 1.5%, excluding commitment fees. Depending on the funding source used by the financial institutions to purchase the receivables, amounts outstanding under the Receivables Facility bear interest at one of the following and, in each case, plus an applicable margin of 0.75%:
a. | for financial institutions using the commercial paper market, commercial paper rates based on the applicable variable rates in the commercial paper market at the time of issuance; or
b. | for financial institutions not using the commercial paper market, LMIR.
We also pay an unused fee of 0.35% on the excess of the facility limit over the average daily capital outstanding. We pay this fee monthly in arrears. Australian Seasonal Credit Facility PSL utilizes the Australian Seasonal Credit Facility to supplement working capital needs during its peak season, which runs from July to March. The arrangement provides a borrowing capacity of AU$3.0 million, and any amounts outstanding must be repaid by April 1. Cash Pooling Arrangement Certain of our foreign subsidiaries entered into a cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows the participating subsidiaries to withdraw cash from the financial institution to the extent that aggregate cash deposits held by these subsidiaries are available at the financial institution. To the extent the participating subsidiaries are in an overdraft position, such overdrafts are recorded as short-term borrowings under a committed cash overdraft facility. These borrowings bear interest at a variable rate based on 3-month Euro Interbank Offered Rate (EURIBOR), plus a fixed margin. We also pay a commitment fee on the borrowing capacity of €10.0 million. This fee is paid annually in advance. As of December 31, 2016, there were no amounts outstanding under the overdraft facility. Interest Rate Swaps In 2016, we had five interest rate swap contracts in place to reduce our exposure to fluctuations in interest rates on the Credit Facility. Each of these swap contracts terminated on October 19, 2016. These swaps converted the variable interest rates to fixed interest rates on borrowings under the Credit Facility. For these interest rate swaps, we recognized no gains or losses through income, nor was there any effect on income from hedge ineffectiveness over the term of these swap contracts. The following table provides additional details related to each of these swap contracts:
Derivative |  | Effective Date |  | Notional Amount (in millions) |  | Fixed Interest Rate
Interest rate swap 1 |  | November 21, 2011 |  | $ | 25.0 |  |  | 1.185 | %
Interest rate swap 2 |  | November 21, 2011 |  | 25.0 |  |  | 1.185 | %
Interest rate swap 3 |  | December 21, 2011 |  | 50.0 |  |  | 1.100 | %
Interest rate swap 4 |  | January 17, 2012 |  | 25.0 |  |  | 1.050 | %
Interest rate swap 5 |  | January 19, 2012 |  | 25.0 |  |  | 0.990 | %
We currently have three interest rate swap contracts in place, which became effective on October 19, 2016. These swaps were previously forward-starting contracts that were amended in October 2015. These swaps were amended to bring the fixed rates per our forward-starting contracts in line with current market rates and extend the hedged period for future interest payments on our Credit Facility following the October 19, 2016 termination date of the swap contracts described above. Concurrent with this amendment of these contracts, we de-designated the original hedge arrangements and designated the amended forward-starting interest rate swap contracts as cash flow hedges. As amended, these swap contracts terminate on November 20, 2019. In 2015, we recognized a benefit as a result of our determination of ineffectiveness for the period. In the first quarter of 2016, these forward-starting interest rate swaps were deemed highly effective, and the benefit previously recognized was reversed, resulting in $0.6 million in expense. There was no benefit or expense recognized in the second and third quarters of 2016 as these swaps continued to be highly effective for the periods. In the fourth quarter of 2016, we recognized a benefit of $0.5 million as a result of minimal ineffectiveness for that period. These amounts were recorded in Interest and other non-operating expenses, net on our Consolidated Statements of Income. The following table provides additional details related to each of these amended swap contracts:
Derivative |  | Amendment Date |  | Notional Amount (in millions) |  | Fixed Interest Rate
Interest rate swap 6 |  | October 1, 2015 |  | $ | 75.0 |  |  | 2.273 | %
Interest rate swap 7 |  | October 1, 2015 |  | 25.0 |  |  | 2.111 | %
Interest rate swap 8 |  | October 1, 2015 |  | 50.0 |  |  | 2.111 | %
To account for the de-designation of the original forward-starting swaps, we were required to freeze the amounts related to the changes in the fair values of these swaps, which are recorded in Accumulated other comprehensive income (loss). These unrealized losses, which total $3.7 million, are being amortized over the effective period of the original forward-starting interest rate swap contracts from October 2016 to September 2018. In the fourth quarter of 2016, we recorded expense of $0.4 million as amortization of the unrealized loss in Interest and other non-operating expenses, net. In July 2016 we entered into a new forward-starting interest rate swap contract to extend the hedged period for future interest payments on our Credit Facility to its maturity date. This swap contract will convert the variable interest rate to a fixed interest rate on borrowings under the Credit Facility. This contract becomes effective on November 20, 2019 and terminates on November 20, 2020. The following table provides additional details related to this new swap contract:
Derivative |  | Inception Date |  | Notional Amount (in millions) |  | Fixed Interest Rate
Forward-starting interest rate swap |  | July 6, 2016 |  | $ | 150.0 |  |  | 1.1425 | %
The net difference between interest paid and interest received related to our swap agreements resulted in incremental interest expense of $1.3 million in 2016, $1.4 million in 2015 and $1.4 million in 2014. Failure of our swap counterparties would result in the loss of any potential benefit to us under our swap agreements. In this case, we would still be obligated to pay the variable interest payments underlying our debt agreements. Additionally, failure of our swap counterparties would not eliminate our obligation to continue to make payments under our existing swap agreements if we continue to be in a net pay position. Financial and Other Covenants Financial covenants on the Credit Facility and Receivables Facility are closely aligned and include a minimum fixed charge coverage ratio and maintenance of a maximum average total leverage ratio, which are our most restrictive covenants. The Credit Facility also limits the declaration and payment of dividends on our common stock to no more than 50% of the preceding year’s Net Income (as defined in the Credit Facility), provided no default or event of default has occurred and is continuing, or would result from the payment of dividends. Additionally, we may declare and pay quarterly dividends notwithstanding that the aggregate amount of dividends paid would be in excess of the 50% limit described above so long as (i) the amount per share of such dividends does not exceed the amount per share paid during the most recent fiscal year in which we were in compliance with the 50% limit and (ii) our Average Total Leverage Ratio is less than 3.00 to 1.00 both immediately before and after giving pro forma effect to such dividends. Further, dividends must be declared and paid in a manner consistent with our past practice. Under the Credit Facility, we may repurchase shares of our common stock provided no default or event of default has occurred and is continuing, or would result from the repurchase of shares, and our maximum average total leverage ratio (determined on a pro forma basis) is less than 2.50 to 1.00. Other covenants include restrictions on our ability to grant liens, incur indebtedness, make investments, merge or consolidate, and sell or transfer assets. Failure to comply with any of our financial covenants or any other terms of the Credit Facility could result in penalty payments, higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt. As of December 31, 2016, we were in compliance with all covenants and financial ratio requirements related to the Credit Facility and the Receivables Facility. Deferred Financing Costs We capitalize financing costs we incur related to implementing and amending our debt arrangements. Upon adoption of ASU 2015-03, we now record these costs as a component of Long-term debt, net on our Consolidated Balance Sheets and continue to amortize them over the contractual life of the related debt arrangement. The table below summarizes changes in deferred financing costs for the past two years (in thousands):
|  | December 31,
|  | 2016 |  | 2015
Deferred financing costs: |  |  |  |
Balance at beginning of year |  | $ | 4,814 |  |  | $ | 4,494 |
Financing costs deferred |  | 69 |  |  | 320 |
Balance at end of year |  | 4,883 |  |  | 4,814 |
Accumulated amortization of deferred financing costs |  | (3,771 | ) |  | (3,144 | )
Deferred financing costs, net of accumulated amortization |  | $ | 1,112 |  |  | $ | 1,670 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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