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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Watsco Inc | NYSE:WSO.B | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 445.15 | 475.12 | 459.55 | 475.12 | 15 | 22:00:00 |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
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||||
|
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||
Emerging growth company |
Page No. | ||||||
Item 1. |
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3 | ||||||
4 | ||||||
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6 | ||||||
8 | ||||||
9 | ||||||
Item 2. |
15 | |||||
Item 3. |
24 | |||||
Item 4. |
24 | |||||
Item 1. |
24 | |||||
Item 1A. |
24 | |||||
Item 5. |
24 | |||||
Item 6. |
25 | |||||
26 | ||||||
EXHIBITS |
Quarter Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues |
$ |
$ | $ |
$ | ||||||||||||
Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Other income |
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Operating income |
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Interest expense, net |
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Income before income taxes |
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Income taxes |
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Net income |
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Less: net income attributable to non-controlling interest |
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Net income attributable to Watsco, Inc. |
$ |
$ | $ |
$ | ||||||||||||
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Earnings per share for Common and Class B common stock: |
||||||||||||||||
Basic |
$ |
$ | $ |
$ | ||||||||||||
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Diluted |
$ |
$ | $ |
$ | ||||||||||||
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Quarter Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income |
$ |
$ | $ |
$ | ||||||||||||
Other comprehensive income (loss), net of tax Foreign currency translation adjustment |
( |
) | ( |
) | ||||||||||||
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|||||||||
Other comprehensive income (loss) |
( |
) | ( |
) | ||||||||||||
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Comprehensive income |
||||||||||||||||
Less: comprehensive income attributable to non-controlling interest |
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|||||||||
Comprehensive income attributable to Watsco, Inc. |
$ |
$ | $ |
$ | ||||||||||||
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|
June 30, 2023 |
December 31, 2022 |
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ASSETS |
||||||||
Current assets: |
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Cash and cash equivalents |
$ |
$ | ||||||
Accounts receivable, net |
||||||||
Inventories, net |
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Other current assets |
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Total current assets |
||||||||
Property and equipment, net |
||||||||
Operating lease right-of-use |
||||||||
Goodwill |
||||||||
Intangible assets, net |
||||||||
Investment in unconsolidated entity |
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Other assets |
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$ |
$ | |||||||
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|
|||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term obligations |
$ |
$ | ||||||
Borrowings under revolving credit agreement |
||||||||
Accounts payable |
||||||||
Accrued expenses and other current liabilities |
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Total current liabilities |
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Long-term obligations: |
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Borrowings under revolving credit agreement |
||||||||
Operating lease liabilities, net of current portion |
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Finance lease liabilities, net of current portion |
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|
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Total long-term obligations |
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Deferred income taxes and other liabilities |
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Commitments and contingencies |
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Watsco, Inc. shareholders’ equity: |
||||||||
Common stock, $ |
||||||||
Class B common stock, $ |
||||||||
Preferred stock, $ |
||||||||
Paid-in capital |
||||||||
Accumulated other comprehensive loss, net of tax |
( |
) |
( |
) | ||||
Retained earnings |
||||||||
Treasury stock, at cost |
( |
) |
( |
) | ||||
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|
|
|||||
Total Watsco, Inc. shareholders’ equity |
||||||||
Non-controlling interest |
||||||||
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Total shareholders’ equity |
||||||||
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|
|||||
$ |
$ | |||||||
|
|
|
|
(In thousands, except share and per share data) |
Common Stock, Class B Common Stock and Preferred Stock Shares |
Common Stock, Class B Common Stock and Preferred Stock Amount |
Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Treasury Stock |
Non- controlling Interest |
Total |
||||||||||||||||||||||||
Balance at December 31, 2022 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||||||
Issuances of restricted shares of common stock |
( |
) |
— |
|||||||||||||||||||||||||||||
Forfeitures of restricted shares of common stock |
( |
) |
( |
) |
— |
|||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Issuance of Class B common stock |
||||||||||||||||||||||||||||||||
Retirement of common stock |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ per share |
( |
) |
( |
) | ||||||||||||||||||||||||||||
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Balance at March 31, 2023 |
( |
) |
( |
) |
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Net income |
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Other comprehensive income |
||||||||||||||||||||||||||||||||
Issuances of restricted shares of common stock |
( |
) |
— |
|||||||||||||||||||||||||||||
Forfeitures of restricted shares of common stock |
( |
) |
— |
|||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Retirement of common stock |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Net proceeds from the sale of Common stock |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ per share |
( |
) |
( |
) | ||||||||||||||||||||||||||||
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Balance at June 30, 2023 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
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(In thousands, except share and per share data) |
Common Stock, Class B Common Stock and Preferred Stock Shares |
Common Stock, Class B Common Stock and Preferred Stock Amount |
Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Treasury Stock |
Non- controlling Interest |
Total |
||||||||||||||||||||||||
Balance at December 31, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||||||
Issuances of restricted shares of common stock |
( |
) |
— |
|||||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ per share |
( |
) |
( |
) | ||||||||||||||||||||||||||||
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Balance at March 31, 2022 |
( |
) |
( |
) |
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Net income |
||||||||||||||||||||||||||||||||
Other comprehensive (loss) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||
Issuances of restricted shares of common stock |
( |
) |
— |
|||||||||||||||||||||||||||||
Forfeitures of restricted shares of common stock |
( |
) |
( |
) |
— |
|||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Retirement of common stock |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ per share |
( |
) |
( |
) | ||||||||||||||||||||||||||||
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|||||||||||||||||
Balance at June 30, 2022 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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Six Months Ended June 30, |
||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ |
$ |
||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||
Depreciation and amortization |
||||||||
Share-based compensation |
||||||||
Provision for doubtful accounts |
||||||||
Deferred income tax provision |
||||||||
Other income from investment in unconsolidated entity |
( |
) |
( |
) | ||||
Other, net |
||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||
Accounts receivable, net |
( |
) |
( |
) | ||||
Inventories, net |
( |
) |
( |
) | ||||
Accounts payable and other liabilities |
||||||||
Other, net |
( |
) |
||||||
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|
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|
|||||
Net cash (used in) provided by operating activities |
( |
) |
||||||
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|
|||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
( |
) |
( |
) | ||||
Business acquisitions, net of cash acquired |
( |
) |
( |
) | ||||
Proceeds from sale of property and equipment |
||||||||
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|
|||||
Net cash used in investing activities |
( |
) |
( |
) | ||||
|
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|
|||||
Cash flows from financing activities: |
||||||||
Net proceeds under current revolving credit agreement |
||||||||
Net proceeds from the sale of Common stock |
||||||||
Net proceeds from issuances of Common stock under employee-related plans |
||||||||
Payment of fees related to revolving credit agreement |
( |
) |
||||||
Net repayments of finance lease liabilities |
( |
) |
( |
) | ||||
Repurchases of common stock to satisfy employee withholding tax obligations |
( |
) |
( |
) | ||||
Net (repayments) proceeds under prior revolving credit agreement |
( |
) |
||||||
Dividends on Common and Class B common stock |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
( |
) | ||||||
|
|
|
|
|||||
Effect of foreign exchange rate changes on cash and cash equivalents |
( |
) | ||||||
|
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|
|||||
Net increase in cash and cash equivalents |
||||||||
Cash and cash equivalents at beginning of period |
||||||||
|
|
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|
|||||
Cash and cash equivalents at end of period |
$ |
$ |
||||||
|
|
|
|
Quarter Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Primary Geographical Regions: |
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United States |
$ |
$ | $ |
$ | ||||||||||||
Canada |
||||||||||||||||
Latin America and the Caribbean |
||||||||||||||||
$ |
$ | $ |
$ | |||||||||||||
Major Product Lines: |
||||||||||||||||
HVAC equipment |
% |
% | % |
% | ||||||||||||
Other HVAC products |
% |
% | % |
% | ||||||||||||
Commercial refrigeration products |
% |
% | % |
% | ||||||||||||
% |
% | % |
% | |||||||||||||
Quarter Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Basic Earnings per Share: |
||||||||||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | $ |
$ | ||||||||||||
Less: distributed and undistributed earnings allocated to restricted common stock |
||||||||||||||||
Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | $ |
$ | ||||||||||||
Weighted-average common shares outstanding—Basic |
||||||||||||||||
Basic earnings per share for Common and Class B common stock |
$ |
$ | $ |
$ | ||||||||||||
Allocation of earnings for Basic: |
||||||||||||||||
Common stock |
$ |
$ | $ |
$ | ||||||||||||
Class B common stock |
||||||||||||||||
$ |
$ | $ |
$ | |||||||||||||
Diluted Earnings per Share: |
||||||||||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | $ |
$ | ||||||||||||
Less: distributed and undistributed earnings allocated to restricted common stock |
||||||||||||||||
Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | $ |
$ | ||||||||||||
Weighted-average common shares outstanding—Basic |
||||||||||||||||
Effect of dilutive stock options |
||||||||||||||||
Weighted-average common shares outstanding—Diluted |
||||||||||||||||
Diluted earnings per share for Common and Class B common stock |
$ |
$ | $ |
$ | ||||||||||||
Anti-dilutive stock options not included above |
Six Months Ended June 30, |
2023 | 2022 | ||||||
Foreign currency translation adjustment: |
||||||||
Beginning balance |
$ |
( |
) |
$ | ( |
) | ||
Current period other comprehensive income (loss) |
( |
) | ||||||
Ending balance |
$ |
( |
) |
$ |
( |
) | ||
Asset Derivatives |
Liability Derivatives |
|||||||||||||||
June 30, 2023 |
December 31, 2022 |
June 30, 2023 |
December 31, 2022 |
|||||||||||||
Derivatives designated as hedging instruments |
$ |
$ | $ |
$ | ||||||||||||
Derivatives not designated as hedging instruments |
||||||||||||||||
Total derivative instruments |
$ |
$ | $ |
$ | ||||||||||||
Total |
Fair Value Measurements at June 30, 2023 Using |
|||||||||||||||||||
Balance Sheet Location |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||||
Assets: |
||||||||||||||||||||
Derivative financial instruments |
Other current assets | $ |
— |
$ |
— |
|||||||||||||||
Equity securities |
Other assets | $ |
$ |
— |
— |
|||||||||||||||
Private equities |
Other assets | $ |
— |
— |
$ |
|||||||||||||||
Total | Fair Value Measurements at December 31, 2022 Using |
|||||||||||||||||||
Balance Sheet Location | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Assets: |
||||||||||||||||||||
Equity securities |
Other assets | $ | $ | — | — | |||||||||||||||
Private equities |
Other assets | $ | — | — | $ |
• | general economic conditions, both in the United States and in the international markets we serve; |
• | competitive factors within the HVAC/R industry; |
• | effects of supplier concentration, including conditions that impact the supply chain; |
• | fluctuations in certain commodity costs; |
• | consumer spending; |
• | consumer debt levels; |
• | the resurgence of the COVID-19 pandemic; |
• | new housing starts and completions; |
• | capital spending in the commercial construction market; |
• | access to liquidity needed for operations; |
• | seasonal nature of product sales; |
• | weather patterns and conditions; |
• | insurance coverage risks; |
• | federal, state, and local regulations impacting our industry and products; |
• | prevailing interest rates; |
• | the effect of inflation; |
• | foreign currency exchange rate fluctuations; |
• | international risk; |
• | cybersecurity risk; and |
• | the continued viability of our business strategy. |
Quarter Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues |
100.0 |
% |
100.0 | % | 100.0 |
% |
100.0 | % | ||||||||
Cost of sales |
71.9 |
72.1 | 71.6 |
71.4 | ||||||||||||
Gross profit |
28.1 |
27.9 | 28.4 |
28.6 | ||||||||||||
Selling, general and administrative expenses |
15.2 |
14.8 | 16.6 |
16.4 | ||||||||||||
Other income |
0.4 |
0.3 | 0.3 |
0.3 | ||||||||||||
Operating income |
13.3 |
13.5 | 12.1 |
12.5 | ||||||||||||
Interest expense, net |
0.2 |
0.1 | 0.1 |
0.0 | ||||||||||||
Income before income taxes |
13.1 |
13.4 | 12.0 |
12.5 | ||||||||||||
Income taxes |
2.8 |
2.8 | 2.6 |
2.6 | ||||||||||||
Net income |
10.3 |
10.6 | 9.4 |
9.9 | ||||||||||||
Less: net income attributable to non-controlling interest |
1.6 |
1.5 | 1.5 |
1.5 | ||||||||||||
Net income attributable to Watsco, Inc. |
8.6 |
% |
9.0 | % | 8.0 |
% |
8.4 | % | ||||||||
Number of Locations |
||||
June 30, 2022 |
673 | |||
Opened |
4 | |||
Closed |
(4 | ) | ||
December 31, 2022 |
673 | |||
Opened |
3 | |||
Acquired |
3 | |||
Closed |
(6 | ) | ||
June 30, 2023 |
673 |
|||
Quarters Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Revenues |
$ |
2,003.1 |
$ | 2,133.8 | $ | (130.7 | ) | (6 | %) |
Quarters Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Same-store sales |
$ |
1,996.3 |
$ | 2,131.3 | $ | (135.0 | ) | (6 | %) |
% of Sales | % Change | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
HVAC equipment |
69 |
% |
70 | % | (8 |
%) |
19 | % | ||||||||
Other HVAC products |
27 |
% |
26 | % | (7 |
%) |
23 | % | ||||||||
Commercial refrigeration products |
4 |
% |
4 | % | 1 |
% |
26 | % |
Quarters Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Gross profit |
$ |
562.6 |
$ | 595.5 | $ | (32.9 | ) | (6% | ) | |||||||
Gross margin |
28.1 |
% |
27.9 | % |
Quarters Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Selling, general and administrative expenses |
$ |
304.2 |
$ | 314.8 | $ | (10.6 | ) | (3% | ) | |||||||
Selling, general and administrative expenses as a percentage of revenues |
15.2 |
% |
14.8 | % |
Quarters Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Income taxes |
$ |
56.9 |
$ | 60.5 | $ | (3.6 | ) | (6% | ) | |||||||
Effective income tax rate |
24.6 |
% |
23.8 | % |
Six Months Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Revenues |
$ |
3,553.7 |
$ | 3,657.3 | $ | (103.6 | ) | (3 | %) |
Six Months Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Same-store sales |
$ |
3,542.7 |
$ | 3,653.3 | $ | (110.6 | ) | (3 | %) |
% of Sales | % Change | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
HVAC equipment |
69 |
% |
69 | % | (4 |
%) |
24 | % | ||||||||
Other HVAC products |
27 |
% |
28 | % | (5 |
%) |
27 | % | ||||||||
Commercial refrigeration products |
4 |
% |
3 | % | 6 |
% |
30 | % |
Six Months Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Gross profit |
$ |
1,010.8 |
$ | 1,045.9 | $ | (35.1 | ) | (3% | ) | |||||||
Gross margin |
28.4 |
% |
28.6 | % |
Six Months Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Selling, general and administrative expenses |
$ |
591.2 |
$ | 598.1 | $ | (6.9 | ) | (1% | ) | |||||||
Selling, general and administrative expenses as a percentage of revenues |
16.6 |
% |
16.4 | % |
Six Months Ended June 30, | ||||||||||||||||
(in millions) |
2023 | 2022 | Change | |||||||||||||
Income taxes |
$ |
90.6 |
$ | 96.1 | $ | (5.5 | ) | (6 | %) | |||||||
Effective income tax rate |
24.1 |
% |
23.8 | % |
• | cash needed to fund our business (primarily working capital requirements); |
• | borrowing capacity under our revolving credit facility; |
• | the ability to attract long-term capital with satisfactory terms; |
• | acquisitions, including joint ventures and investments in unconsolidated entities; |
• | dividend payments; |
• | capital expenditures; and |
• | the timing and extent of common stock repurchases. |
2023 |
2022 |
Change |
||||||||||
Cash flows (used in) provided by operating activities |
$ |
(89.2 |
) |
$ | 73.1 | $ | (162.3 | ) | ||||
Cash flows used in investing activities |
$ |
(17.6 |
) |
$ | (18.9 | ) | $ | 1.3 | ||||
Cash flows provided by (used in) financing activities |
$ |
120.5 |
$ | (42.3 | ) | $ | 162.8 |
# | filed herewith. |
+ | furnished herewith. |
WATSCO, INC. | ||||||
(Registrant) | ||||||
Date: August 3, 2023 | By: | /s/ Ana M. Menendez | ||||
Ana M. Menendez | ||||||
Chief Financial Officer (on behalf of the Registrant and as Principal Financial Officer) |
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Albert H. Nahmad, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Watsco, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 3, 2023
/s/ Albert H. Nahmad |
Albert H. Nahmad |
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Barry S. Logan, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Watsco, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 3, 2023
/s/ Barry S. Logan |
Barry S. Logan |
Executive Vice President |
Exhibit 31.3
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ana M. Menendez, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Watsco, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 3, 2023
/s/ Ana M. Menendez |
Ana M. Menendez |
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Watsco, Inc. (Watsco) for the quarter and six months ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the Report), Albert H. Nahmad, as Chief Executive Officer of Watsco, Barry S. Logan, as Executive Vice President of Watsco and Ana M. Menendez, as Chief Financial Officer of Watsco, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Watsco. |
/s/ Albert H. Nahmad |
Albert H. Nahmad |
Chief Executive Officer |
August 3, 2023 |
/s/ Barry S. Logan |
Barry S. Logan |
Executive Vice President |
August 3, 2023 |
/s/ Ana M. Menendez |
Ana M. Menendez |
Chief Financial Officer |
August 3, 2023 |
A signed original of this written statement required by Section 906 has been provided to Watsco and will be retained by Watsco and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by Watsco for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Condensed Consolidated Unaudited Statements of Income - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
Revenues | $ 2,003,084 | $ 2,133,755 | $ 3,553,725 | $ 3,657,325 |
Cost of sales | 1,440,462 | 1,538,222 | 2,542,946 | 2,611,434 |
Gross profit | 562,622 | 595,533 | 1,010,779 | 1,045,891 |
Selling, general and administrative expenses | 304,155 | 314,753 | 591,212 | 598,107 |
Other income | 7,238 | 6,317 | 10,878 | 10,362 |
Operating income | 265,705 | 287,097 | 430,445 | 458,146 |
Interest expense, net | 3,415 | 1,110 | 4,030 | 1,668 |
Income before income taxes | 262,290 | 285,987 | 426,415 | 456,478 |
Income taxes | 56,887 | 60,481 | 90,641 | 96,082 |
Net income | 205,403 | 225,506 | 335,774 | 360,396 |
Less: net income attributable to non-controlling interest | 32,639 | 32,949 | 52,937 | 54,541 |
Net income attributable to Watsco, Inc. | $ 172,764 | $ 192,557 | $ 282,837 | $ 305,855 |
Earnings per share for Common and Class B common stock: | ||||
Basic | $ 4.43 | $ 4.94 | $ 7.27 | $ 7.86 |
Diluted | $ 4.42 | $ 4.93 | $ 7.25 | $ 7.83 |
Condensed Consolidated Unaudited Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
Net income | $ 205,403 | $ 225,506 | $ 335,774 | $ 360,396 |
Other comprehensive (loss) income, net of tax | ||||
Other comprehensive income (loss), net of tax Foreign currency translation adjustment | 7,115 | (9,381) | 7,375 | (5,000) |
Other comprehensive income (loss) | 7,115 | (9,381) | 7,375 | (5,000) |
Comprehensive income | 212,518 | 216,125 | 343,149 | 355,396 |
Less: comprehensive income attributable to non-controlling interest | 34,974 | 29,833 | 55,362 | 52,871 |
Comprehensive income attributable to Watsco, Inc. | $ 177,544 | $ 186,292 | $ 287,787 | $ 302,525 |
Condensed Consolidated Unaudited Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Preferred stock, par value | $ 0.5 | $ 0.5 |
Common Stock | ||
Common stock, par value | 0.5 | 0.5 |
Class B Common Stock | ||
Common stock, par value | $ 0.5 | $ 0.5 |
Condensed Consolidated Unaudited Statements of Shareholders' Equity (Parenthetical) - $ / shares |
3 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2023 |
Mar. 31, 2023 |
Jun. 30, 2022 |
Mar. 31, 2022 |
|
Cash dividends declared and paid, common stock | $ 2.45 | $ 2.45 | $ 2.2 | $ 1.95 |
Pay vs Performance Disclosure - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
Pay vs Performance Disclosure | ||||
Net Income (Loss) | $ 172,764 | $ 192,557 | $ 282,837 | $ 305,855 |
Insider Trading Arrangements |
6 Months Ended |
---|---|
Jun. 30, 2023 | |
Trading Arrangements, by Individual | |
Rule 10b5-1 Arrangement Adopted | false |
Non-Rule 10b5-1 Arrangement Adopted | false |
Rule 10b5-1 Arrangement Terminated | false |
Non-Rule 10b5-1 Arrangement Terminated | false |
BASIS OF PRESENTATION |
6 Months Ended |
---|---|
Jun. 30, 2023 | |
BASIS OF PRESENTATION | 1. BASIS OF PRESENTATION Basis of Consolidation Watsco, Inc. (collectively with its subsidiaries, “Watsco,” “we,” “us,” or “our”) was incorporated in Florida in 1956 and is the largest distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America. The accompanying June 30, 2023 interim condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in the condensed consolidated unaudited financial statements included herein. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2022 Annual Report on Form 10-K. The condensed consolidated unaudited financial statements include the accounts of Watsco, all of its wholly owned subsidiaries, the accounts of four joint ventures with Carrier Global Corporation, which we refer to as Carrier, in which we have a controlling interest, the accounts of Carrier InterAmerica Corporation, in which we have an 80% controlling interest, and Carrier has a 20% non-controlling interest, and our 38.1% investment in Russell Sigler, Inc., which is accounted for under the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation. The results of operations for the quarter and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023. Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal. Furthermore, profitability can be impacted favorably or unfavorably based on weather patterns, particularly during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is usually highest in the first and fourth quarters. Demand related to the new construction sectors throughout most of the markets we serve tends to be fairly evenly distributed throughout the year and depends largely on housing completions and related weather and economic conditions. Equity Method Investments Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in investment in unconsolidated entity in our condensed consolidated unaudited balance sheets. Under this method of accounting, our proportionate share of the net income or loss of the investee is included in other income in our condensed consolidated unaudited statements of income. The excess, if any, of the carrying amount of our investment over our ownership percentage in the underlying net assets of the investee is attributed to certain fair value adjustments with the remaining portion recognized as goodwill. Use of Estimates The preparation of condensed consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amounts of revenues and expenses for the reporting period. Significant estimates include valuation reserves for accounts receivable, net realizable value adjustments to inventories, income taxes, reserves related to loss contingencies and the valuation of goodwill, indefinite-lived intangible assets, and long-lived assets. While we believe that these estimates are reasonable, actual results could differ from such estimates.
|
REVENUES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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REVENUES | 2. REVENUES Disaggregation of Revenues The following table presents our revenues disaggregated by primary geographical regions and major product lines within our single reporting segment:
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EARNINGS PER SHARE |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | 3. EARNINGS PER SHARE The following table presents the calculation of basic and diluted earnings per share for our Common and Class B common stock:
Diluted earnings per share for our Common stock assumes the conversion of all of our Class B common stock into Common stock as of the beginning of the fiscal year; therefore, no allocation of earnings to Class B common stock is required. At June 30, 2023 and 2022, our outstanding Class B common stock was convertible into 3,232,419 and 2,575,604 shares of our Common stock, respectively.
|
OTHER COMPREHENSIVE INCOME (LOSS) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER COMPREHENSIVE INCOME (LOSS) | 4. OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) consists of the foreign currency translation adjustment associated with our Canadian operations’ use of the Canadian dollar as their functional currency. The change in accumulated other comprehensive loss, net of tax, was as follows:
|
ACQUISITION |
6 Months Ended |
---|---|
Jun. 30, 2023 | |
ACQUISITION | 5. ACQUISITION Capitol District Supply Co., Inc. On March 3, 2023, one of our wholly owned subsidiaries acquired Capitol District Supply Co., Inc., a distributor of air conditioning and heating products with annual sales of approximately $13,000, operating from three locations in New York. Consideration for the purchase consisted of $1,282 in cash, net of cash acquired of $144, and $1,851 for repayment of indebtedness. The results of operations of this acquisition have been included in the condensed consolidated unaudited financial statements from its date of acquisition. The pro forma effect of this acquisition was not deemed significant to the condensed consolidated unaudited financial statements.
|
DEBT |
6 Months Ended |
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Jun. 30, 2023 | |
DEBT | 6. DEBT On March 16, 2023, we entered into an unsecured, five-year $600,000 syndicated multicurrency revolving credit agreement, which replaced in its entirety our prior five-year $560,000 unsecured revolving credit agreement that was nearing maturity. Proceeds from the new facility were used to repay the $235,500 outstanding under the prior facility. Additional proceeds may be used for, among other things, funding seasonal working capital needs and other general corporate purposes, including acquisitions, dividends (if and as declared by our Board of Directors), capital expenditures, stock repurchases, and issuances of letters of credit. The revolving credit facility has a seasonal component from October 1 to March 31, during which the borrowing capacity may be reduced to $500,000 at our discretion (which effectively reduces fees payable in respect of the unused portion of the commitment). Included in the revolving credit facility are a $125,000 swingline loan sublimit, a $10,000 letter of credit sublimit, a $75,000 alternative currency borrowing sublimit, and an $10,000 Mexican borrowing subfacility. The credit agreement matures on March 16, 2028. Borrowings under the revolving credit facility bear interest at either Term Secured Overnight Financing Rate (“SOFR”) or Daily Simple SOFR-based rates plus 0.10%, plus a spread which ranges from 100.0 to 137.5 basis-points (Term SOFR and Daily Simple SOFR plus 100.0 basis-points at June 30, 2023), depending on our ratio of total debt to EBITDA, or on rates based on the highest of the Federal Funds Effective Rate plus 0.5%, the Prime Rate or Term SOFR plus 1.0%, in each case plus a spread which ranges from 0 to 50.0 basis-points (0 basis-points at June 30, 2023), depending on our ratio of total debt to EBITDA. We pay a variable commitment fee on the unused portion of the commitment under the revolving credit agreement, ranging from 12.5 to 27.5 basis-points (12.5 basis-points at June 30, 2023). We paid fees of $580 in connection with entering into the revolving credit agreement, which are being amortized ratably through the maturity of the facility in March 2028. At June 30, 2023, $342,900 was outstanding under the revolving credit agreement. The revolving credit agreement contains customary affirmative and negative covenants, including financial covenants with respect to consolidated leverage and interest coverage ratios, and other customary restrictions. We believe we were in compliance with all covenants at June 30, 2023.
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DERIVATIVES |
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DERIVATIVES | 7. DERIVATIVES We enter into foreign currency forward and option contracts to offset the earnings impact that foreign exchange rate fluctuations would otherwise have on certain monetary liabilities that are denominated in nonfunctional currencies. Derivatives Not Designated as Hedging Instruments We have entered into foreign currency forward and option contracts that are either not designated as hedges or did not qualify for hedge accounting. These derivative instruments were effective economic hedges for all of the periods presented. The fair value gains and losses on these contracts are recognized in earnings as a component of selling, general and administrative expenses. The total notional value of our foreign currency exchange contracts not designated as hedging instruments at June 30, 2023 was $18,800, and such contracts expired in July 2023. We recognized losses of $1,658 and $52 from foreign currency forward and option contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the quarters ended June 30, 2023 and 2022, respectively. We recognized losses of $2,052 and $375 from foreign currency forward and option contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the six months ended June 30, 2023 and 2022, respectively. The following table summarizes the fair value of derivative instruments, which consist solely of foreign exchange contracts, included in other current assets in our condensed consolidated unaudited balance sheets. See Note 8.
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FAIR VALUE MEASUREMENTS |
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FAIR VALUE MEASUREMENTS | 8. FAIR VALUE MEASUREMENTS The following tables present our assets and liabilities carried at fair value that are measured on a recurring basis:
The following is a description of the valuation techniques used for these assets and liabilities, as well as the level of input used to measure fair value: Derivative financial instruments Equity securities Private equities |
SHAREHOLDERS' EQUITY |
6 Months Ended |
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Jun. 30, 2023 | |
SHAREHOLDERS' EQUITY | 9. SHAREHOLDERS’ EQUITY At-the-Market On February 25, 2022, we entered into an amended and restated sales agreement with Robert W. Baird & Co. Inc. and Goldman Sachs & Co. LLC, which enables the Company to issue and sell shares of Common stock in one or more negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), for a maximum aggregate offering amount of up to $300,000 (the “ATM Program”). The offer and sale of our Common stock pursuant to the ATM Program has been registered under the Securities Act pursuant to our automatically effective shelf registration statement on Form S-3 (File No. 333-260758). During the quarter and six months ended June 30, 2023, we issued and paid-in capital. At June 30, 2023, $284,745 remained available for sale under the ATM Program. Common Stock Dividends We paid cash dividends of $2.45, $2.20, $4.90, and $4.15 per share on both Common and Class B common stock during the quarters and six months ended June 30, 2023 and 2022, respectively. Restricted Stock During the six months ended June 30, 2023, a total of 6,047 shares of Common and Class B common stock with an aggregate fair market value of $1,664 were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of restricted stock. These shares were retired upon delivery. During the quarter and six months ended June 30, 2022, 8,181 shares of Class B common stock with an aggregate fair market value of $2,179 were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of restricted stock. These shares were retired upon delivery. Exercise of Stock Options Cash received from the exercise of stock options during the quarters and six months ended June 30, 2023 and 2022, was $4,526, $3,267, $12,694, and $7,222, respectively. During the quarter and six months ended June 30, 2023, 1,737 shares of Common stock with an aggregate fair market value of $595, and 17,392 shares of Common stock with an aggregate fair market value of $5,383, respectively, were withheld as payment in lieu of cash for stock option exercises. These shares were retired upon delivery. Employee Stock Purchase Plan During the quarters ended June 30, 2023 and 2022, we received net proceeds of $554 and $541, respectively, for shares of our Common stock purchased under our employee stock purchase plan. During the six months ended June 30, 2023 and 2022, we received net proceeds of $1,133 and $1,006, respectively, for shares of our Common stock purchased under our employee stock purchase plan.
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COMMITMENTS AND CONTINGENCIES |
6 Months Ended |
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Jun. 30, 2023 | |
COMMITMENTS AND CONTINGENCIES | 10. COMMITMENTS AND CONTINGENCIES Litigation, Claims, and Assessments We are involved in litigation incidental to the operation of our business. We vigorously defend all matters in which we or our subsidiaries are named defendants and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect us. Although the adequacy of existing insurance coverage and the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, we do not believe the ultimate liability associated with any known claims or litigation will have a material adverse effect on our financial condition or results of operations. Self-Insurance Self-insurance reserves are maintained relative to company-wide casualty insurance and health benefit programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When estimating the self-insurance liabilities and related reserves, management considers several factors, which include historical claims experience, demographic factors, severity factors, and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party actuaries to evaluate whether the self-insurance reserves are adequate. If actual claims or adverse development of loss reserves occur and exceed these estimates, additional reserves may be required. Reserves in the amounts of $10,961 and $12,256 at June 30, 2023 and December 31, 2022, respectively, were established related to such programs and are included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets.
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RELATED PARTY TRANSACTIONS |
6 Months Ended |
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Jun. 30, 2023 | |
RELATED PARTY TRANSACTIONS | 11. RELATED PARTY TRANSACTIONS P urchases from Carrier and its affiliates comprised 66% and 60% of all inventory purchases made during th e quarters ended June 30, 2023 and 2022, respectively. Purchases from Carrier and its affiliates comprised 65% and 58% of all inventory purchases made during the six months ended June 30, 2023 and 2022, respectively. At June 30, 2023 and December 31, 2022, approximately $214,000 and $88,000, respectively, was payable to Carrier and its affiliates, net of receivables. We also sell HVAC products to Carrier and its affiliates. Revenues in our condensed consolidated unaudited statements of income for the quarters and six months ended June 30, 2023 and 2022 included approximately $32,000, $29,000, $54,000, and $50,000, respectively, of sales to Carrier and its affiliates. We believe these transactions are conducted on terms equivalent to an arm’s-length basis in the ordinary course of business. A member of our Board of Directors is the Senior Chairman of Greenberg Traurig, P.A., which serves as our principal outside counsel for compliance and acquisition-related legal services. During the quarters and six months ended June 30, 2023 and 2022, fees for services performed were $58, $97, $71 and $129, respectively, and $25 and $1 was payable at June 30, 2023 and December 31, 2022, respectively.
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BASIS OF PRESENTATION (Policies) |
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Jun. 30, 2023 | |
Basis of Consolidation | Basis of Consolidation Watsco, Inc. (collectively with its subsidiaries, “Watsco,” “we,” “us,” or “our”) was incorporated in Florida in 1956 and is the largest distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America. The accompanying June 30, 2023 interim condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in the condensed consolidated unaudited financial statements included herein. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2022 Annual Report on Form 10-K. The condensed consolidated unaudited financial statements include the accounts of Watsco, all of its wholly owned subsidiaries, the accounts of four joint ventures with Carrier Global Corporation, which we refer to as Carrier, in which we have a controlling interest, the accounts of Carrier InterAmerica Corporation, in which we have an 80% controlling interest, and Carrier has a 20% non-controlling interest, and our 38.1% investment in Russell Sigler, Inc., which is accounted for under the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation. The results of operations for the quarter and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023. Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal. Furthermore, profitability can be impacted favorably or unfavorably based on weather patterns, particularly during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is usually highest in the first and fourth quarters. Demand related to the new construction sectors throughout most of the markets we serve tends to be fairly evenly distributed throughout the year and depends largely on housing completions and related weather and economic conditions.
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Equity Method Investments | Equity Method Investments Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in investment in unconsolidated entity in our condensed consolidated unaudited balance sheets. Under this method of accounting, our proportionate share of the net income or loss of the investee is included in other income in our condensed consolidated unaudited statements of income. The excess, if any, of the carrying amount of our investment over our ownership percentage in the underlying net assets of the investee is attributed to certain fair value adjustments with the remaining portion recognized as goodwill.
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Use of Estimates | Use of Estimates The preparation of condensed consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amounts of revenues and expenses for the reporting period. Significant estimates include valuation reserves for accounts receivable, net realizable value adjustments to inventories, income taxes, reserves related to loss contingencies and the valuation of goodwill, indefinite-lived intangible assets, and long-lived assets. While we believe that these estimates are reasonable, actual results could differ from such estimates.
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REVENUES (Tables) |
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Summary of Disaggregated Revenue | The following table presents our revenues disaggregated by primary geographical regions and major product lines within our single reporting segment:
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EARNINGS PER SHARE (Tables) |
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Schedule of Basic and Diluted Earnings Per Common Share | The following table presents the calculation of basic and diluted earnings per share for our Common and Class B common stock:
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OTHER COMPREHENSIVE INCOME (LOSS) (Tables) |
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Schedule of Accumulated Other Comprehensive Loss | The change in accumulated other comprehensive loss, net of tax, was as follows:
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DERIVATIVES (Tables) |
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Fair Value of Derivative Instruments and Location in the Balance Sheets | The following table summarizes the fair value of derivative instruments, which consist solely of foreign exchange contracts, included in other current assets in our condensed consolidated unaudited balance sheets. See Note 8.
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FAIR VALUE MEASUREMENTS (Tables) |
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Assets and Liabilities Measured at Fair Value on Recurring Basis | The following tables present our assets and liabilities carried at fair value that are measured on a recurring basis:
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Basis of Presentation - Additional Information (Detail) |
Jun. 30, 2023
Entity
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Number of Joint Ventures | 4 |
Earnings Per Share - Additional Information (Detail) - shares |
Jun. 30, 2023 |
Jun. 30, 2022 |
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Earnings Per Share [Line Items] | ||
Class B common stock conversion, number of shares | 3,232,419 | 2,575,604 |
Other Comprehensive Income (Loss) - Schedule of Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Thousands |
6 Months Ended | |
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Jun. 30, 2023 |
Jun. 30, 2022 |
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Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Beginning balance | $ (47,710) | |
Ending balance | (42,760) | |
Foreign Currency Translation Adjustment | ||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Beginning balance | (47,710) | $ (34,176) |
Current period other comprehensive income (loss) | 4,950 | (3,330) |
Ending balance | $ (42,760) | $ (37,506) |
Acquisition - Additional Information (Detail) - Capitol District Supply Co Inc [Member] $ in Thousands |
Mar. 03, 2023
USD ($)
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Business Acquisition [Line Items] | |
Cash consideration for Business Acquisition | $ 1,282 |
Cash acquired | 144 |
Repayment of indebtedness | 1,851 |
Annual sales | $ 13,000 |
Derivatives - Fair Value of Derivative Instruments and Location in the Balance Sheets (Detail) - Foreign Exchange Forward And Option Contracts [Member] - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
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Derivatives, Fair Value [Line Items] | ||
Derivative instruments, assets derivatives | $ 9 | $ 0 |
Derivative instruments, liabilities derivatives | 0 | 0 |
Derivatives Designated as Hedging Instruments [Member] | ||
Derivatives, Fair Value [Line Items] | ||
Derivative instruments, assets derivatives | 0 | 0 |
Derivative instruments, liabilities derivatives | 0 | 0 |
Derivatives Not Designated as Hedging Instruments [Member] | ||
Derivatives, Fair Value [Line Items] | ||
Derivative instruments, assets derivatives | 9 | 0 |
Derivative instruments, liabilities derivatives | $ 0 | $ 0 |
Derivatives - Additional Information (Detail) - Foreign Exchange Forward And Option Contracts and Not Designated As Hedging Instrument Economic Hedge [Member] - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
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Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||||
Notional value of derivatives | $ 18,800 | $ 18,800 | ||
Contract expiring terms | 2023-07 | |||
Loss from foreign currency forward and option contracts not designated as hedging instruments | $ (1,658) | $ (52) | $ (2,052) | $ (375) |
Fair Value Measurements - Assets and Liabilities Carried at Fair Value Measured on Recurring Basis (Detail) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
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Other Current Assets | ||
Assets: | ||
Derivative financial instruments | $ 9 | |
Other assets | ||
Assets: | ||
Equity securities | 779 | $ 678 |
Private equities | 1,000 | 1,000 |
Fair Value Measurements, Level 1 | Other assets | ||
Assets: | ||
Equity securities | 779 | 678 |
Fair Value Measurements, Level 2 | Other Current Assets | ||
Assets: | ||
Derivative financial instruments | 9 | |
Fair Value Measurements, Level 3 | Other assets | ||
Assets: | ||
Private equities | $ 1,000 | $ 1,000 |
Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Commitments and Contingencies Disclosure [Line Items] | ||
Self-insurance reserves | $ 10,961 | $ 12,256 |
1 Year Watsco Chart |
1 Month Watsco Chart |
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