☒ | 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 |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||
Common stock, $0.50 par value | WSO | New York Stock Exchange | ||||
Class B common stock, $0.50 par value | WSOB | New York Stock Exchange |
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||
Emerging growth company | ☐ |
Page No. | |||||||||||
Item 1. | |||||||||||
3 | |||||||||||
4 | |||||||||||
5 | |||||||||||
6 | |||||||||||
8 | |||||||||||
9 | |||||||||||
Item 2. | 16 | ||||||||||
Item 3. | |||||||||||
24 | |||||||||||
Item 4. | 24 | ||||||||||
PART II. OTHER INFORMATION | |||||||||||
Item 1. | 25 | ||||||||||
Item 1A. | 25 | ||||||||||
Item 6. | 26 | ||||||||||
27 | |||||||||||
EXHIBITS |
ITEM 1. | CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS |
Quarters Ended March 31, | ||||||||
2020 | 2019 | |||||||
Revenues | $ | 1,008,156 | $ | 931,278 | ||||
Cost of sales | 760,541 | 697,518 | ||||||
Gross profit | 247,615 | 233,760 | ||||||
Selling, general and administrative expenses | 203,386 | 180,072 | ||||||
Other income | 1,014 | 1,444 | ||||||
Operating income | 45,243 | 55,132 | ||||||
Interest expense, net | 790 | 776 | ||||||
Income before income taxes | 44,453 | 54,356 | ||||||
Income taxes | 8,206 | 10,552 | ||||||
Net income | 36,247 | 43,804 | ||||||
Less: net income attributable to non-controlling interest | 5,745 | 8,767 | ||||||
Net income attributable to Watsco, Inc. | $ | 30,502 | $ | 35,037 | ||||
Earnings per share for Common and Class B common stock: | ||||||||
Basic and Diluted | $ | 0.72 | $ | 0.88 | ||||
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | $ | 1,536,671 | $ | 1,394,915 | $ | 3,900,212 | $ | 3,698,047 | ||||||||
Cost of sales | 1,162,908 | 1,060,224 | 2,959,635 | 2,801,612 | ||||||||||||
Gross profit | 373,763 | 334,691 | 940,577 | 896,435 | ||||||||||||
Selling, general and administrative expenses | 221,037 | 212,902 | 618,476 | 589,523 | ||||||||||||
Other income | 4,055 | 3,530 | 9,172 | 7,939 | ||||||||||||
Operating income | 156,781 | 125,319 | 331,273 | 314,851 | ||||||||||||
Interest expense, net | 108 | 1,434 | 1,181 | 3,422 | ||||||||||||
Income before income taxes | 156,673 | 123,885 | 330,092 | 311,429 | ||||||||||||
Income taxes | 30,467 | 24,230 | 63,397 | 60,060 | ||||||||||||
Net income | 126,206 | 99,655 | 266,695 | 251,369 | ||||||||||||
Less: net income attributable to non-controlling interest | 19,717 | 16,175 | 43,126 | 42,697 | ||||||||||||
Net income attributable to Watsco, Inc. | $ | 106,489 | $ | 83,480 | $ | 223,569 | $ | 208,672 | ||||||||
Earnings per share for Common and Class B common stock: | ||||||||||||||||
Basic | $ | 2.77 | $ | 2.20 | $ | 5.83 | $ | 5.54 | ||||||||
Diluted | $ | 2.76 | $ | 2.20 | $ | 5.82 | $ | 5.54 | ||||||||
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | 126,206 | $ | 99,655 | $ | 266,695 | $ | 251,369 | ||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||
Foreign currency translation adjustment | 5,514 | (3,038 | ) | (6,592 | ) | 7,264 | ||||||||||
Unrealized (loss) gain on cash flow hedging instruments | (416 | ) | 255 | 948 | (798 | ) | ||||||||||
Reclassification of gain on cash flow hedging instruments into earnings | (509 | ) | (140 | ) | (691 | ) | (542 | ) | ||||||||
Other comprehensive income (loss) | 4,589 | (2,923 | ) | (6,335 | ) | 5,924 | ||||||||||
Comprehensive income | 130,795 | 96,732 | 260,360 | 257,293 | ||||||||||||
Less: comprehensive income attributable to non-controlling interest | 21,283 | 15,146 | 40,986 | 44,693 | ||||||||||||
Comprehensive income attributable to Watsco, Inc. | $ | 109,512 | $ | 81,586 | $ | 219,374 | $ | 212,600 | ||||||||
Quarters Ended March 31, | ||||||||
2020 | 2019 | |||||||
Net income | $ | 36,247 | $ | 43,804 | ||||
Other comprehensive (loss) income, net of tax | ||||||||
Foreign currency translation adjustment | (21,929 | ) | 5,005 | |||||
Unrealized gain (loss) on cash flow hedging instruments arising during the period | 2,534 | (536 | ) | |||||
Reclassification of loss (gain) on cash flow hedging instruments into earnings | 115 | (274 | ) | |||||
Other comprehensive (loss) income | (19,280 | ) | 4,195 | |||||
Comprehensive income | 16,967 | 47,999 | ||||||
Less: comprehensive (loss) income attributable to non-controlling interest | (796 | ) | 10,179 | |||||
Comprehensive income attributable to Watsco, Inc. | $ | 17,763 | $ | 37,820 | ||||
March 31, 2020 | December 31, 2019 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 51,236 | $ | 74,454 | ||||
Accounts receivable, net | 574,827 | 533,810 | ||||||
Inventories | 942,815 | 920,786 | ||||||
Other current assets | 21,501 | 17,680 | ||||||
Total current assets | 1,590,379 | 1,546,730 | ||||||
Property and equipment, net | 97,443 | 98,523 | ||||||
Operating lease right-of-use assets | 221,285 | 223,369 | ||||||
Goodwill | 406,998 | 411,217 | ||||||
Intangible assets, net | 160,736 | 172,004 | ||||||
Investment in unconsolidated entity | 95,847 | 94,833 | ||||||
Other assets | 9,141 | 9,485 | ||||||
$ | 2,581,829 | $ | 2,556,161 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of lease liabilities | $ | 69,344 | $ | 69,421 | ||||
Accounts payable | 311,586 | 239,666 | ||||||
Accrued expenses and other current liabilities | 139,544 | 152,630 | ||||||
Total current liabilities | 520,474 | 461,717 | ||||||
Long-term obligations: | ||||||||
Borrowings under revolving credit agreement | 156,143 | 155,700 | ||||||
Operating lease liabilities, net of current portion | 152,065 | 154,271 | ||||||
Finance lease liabilities, net of current portion | 2,106 | 2,009 | ||||||
Total long-term obligations | 310,314 | 311,980 | ||||||
Deferred income taxes and other liabilities | 68,155 | 67,697 | ||||||
Commitments and contingencies | ||||||||
Watsco, Inc. shareholders’ equity: | ||||||||
Common stock, $0.50 par value | 18,789 | 18,768 | ||||||
Class B common stock, $0.50 par value | 2,821 | 2,765 | ||||||
Preferred stock, $0.50 par value | — | — | ||||||
Paid-in capital | 920,190 | 907,877 | ||||||
Accumulated other comprehensive loss, net of tax | (51,789 | ) | (39,050 | ) | ||||
Retained earnings | 601,771 | 632,507 | ||||||
Treasury stock, at cost | (87,440 | ) | (87,440 | ) | ||||
Total Watsco, Inc. shareholders’ equity | 1,404,342 | 1,435,427 | ||||||
Non-controlling interest | 278,544 | 279,340 | ||||||
Total shareholders’ equity | 1,682,886 | 1,714,767 | ||||||
$ | 2,581,829 | $ | 2,556,161 | |||||
(In thousands, except | 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, 2019 | 38,194,056 | $ | 21,533 | $ | 907,877 | $ | (39,050 | ) | $ | 632,507 | $ | (87,440 | ) | $ | 279,340 | $ | 1,714,767 | |||||||||||||||
Net income | 30,502 | 5,745 | 36,247 | |||||||||||||||||||||||||||||
Other comprehensive ( loss ) | (12,739 | ) | (6,541 | ) | (19,280 | ) | ||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock | 113,765 | 57 | (57 | ) | — | |||||||||||||||||||||||||||
Common stock contribution to 401(k) plan | 25,216 | 13 | 4,530 | 4,543 | ||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan | 18,674 | 9 | 2,532 | 2,541 | ||||||||||||||||||||||||||||
Retirement of common stock | (4,828 | ) | (2 | ) | (789 | ) | (791 | ) | ||||||||||||||||||||||||
Share-based compensation | 6,097 | 6,097 | ||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $1.60 per share | (61,238 | ) | (61,238 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2020 | 38,346,883 | $ | 21,610 | $ | 920,190 | $ | (51,789 | ) | $ | 601,771 | $ | (87,440 | ) | $ | 278,544 | $ | 1,682,886 | |||||||||||||||
(In thousands, except | 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, 2018 | 37,461,643 | $ | 21,167 | $ | 832,121 | $ | (45,968 | ) | $ | 627,969 | $ | (87,440 | ) | $ | 253,864 | $ | 1,601,713 | |||||||||||||||
Net income | 35,037 | 8,767 | 43,804 | |||||||||||||||||||||||||||||
Other comprehensive income | 2,783 | 1,412 | 4,195 | |||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock | 77,049 | 39 | (39 | ) | — | |||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock | (5,000 | ) | (3 | ) | 3 | — | ||||||||||||||||||||||||||
Common stock contribution to 401(k) plan | 30,715 | 15 | 4,259 | 4,274 | ||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan | 8,925 | 4 | 1,121 | 1,125 | ||||||||||||||||||||||||||||
Retirement of common stock | (2,985 | ) | (1 | ) | (427 | ) | (428 | ) | ||||||||||||||||||||||||
Share-based compensation | 4,537 | 4,537 | ||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $1.60 per share | (59,965 | ) | (59,965 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2019 | 37,570,347 | $ | 21,221 | $ | 841,575 | $ | (43,185 | ) | $ | 603,041 | $ | (87,440 | ) | $ | 264,043 | $ | 1,599,255 | |||||||||||||||
Quarters Ended March 31, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 36,247 | $ | 43,804 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 6,479 | 5,768 | ||||||
Share-based compensation | 4,912 | 3,849 | ||||||
Non-cash contribution to 401(k) plan | 4,543 | 4,274 | ||||||
Provision for doubtful accounts | 2,005 | 1,406 | ||||||
Other income from investment in unconsolidated entity | (1,014 | ) | (1,444 | ) | ||||
Other, net | 668 | (221 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (46,534 | ) | (2,329 | ) | ||||
Inventories | (27,280 | ) | (55,560 | ) | ||||
Accounts payable and other liabilities | 66,049 | 55,350 | ||||||
Other, net | (4,216 | ) | (1,961 | ) | ||||
Net cash provided by operating activities | 41,859 | 52,936 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (3,859 | ) | (4,132 | ) | ||||
Proceeds from sale of property and equipment | 10 | 29 | ||||||
Net cash used in investing activities | (3,849 | ) | (4,103 | ) | ||||
Cash flows from financing activities: | ||||||||
Dividends on Common and Class B common stock | (61,238 | ) | (59,965 | ) | ||||
Repurchases of common stock to satisfy employee withholding tax obligations | (791 | ) | (428 | ) | ||||
Net repayments of long-term obligations | (343 | ) | (230 | ) | ||||
Proceeds from short-term borrowings | — | 2,340 | ||||||
Net proceeds under revolving credit agreement | 443 | 2,300 | ||||||
Net proceeds from issuances of common stock | 2,541 | 1,127 | ||||||
Net cash used in financing activities | (59,388 | ) | (54,856 | ) | ||||
Effect of foreign exchange rate changes on cash and cash equivalents | (1,840 | ) | 402 | |||||
Net decrease in cash and cash equivalents | (23,218 | ) | (5,621 | ) | ||||
Cash and cash equivalents at beginning of period | 74,454 | 82,894 | ||||||
Cash and cash equivalents at end of period | $ | 51,236 | $ | 77,273 | ||||
September 30, 2020 | December 31, 2019 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 92,600 | $ | 74,454 | ||||
Accounts receivable, net | 644,124 | 533,810 | ||||||
Inventories | 884,653 | 920,786 | ||||||
Other current assets | 22,742 | 17,680 | ||||||
Total current assets | 1,644,119 | 1,546,730 | ||||||
Property and equipment, net | 97,660 | 98,523 | ||||||
Operating lease right-of-use | 218,884 | 223,369 | ||||||
Goodwill | 409,783 | 411,217 | ||||||
Intangible assets, net | 164,551 | 172,004 | ||||||
Investment in unconsolidated entity | 103,355 | 94,833 | ||||||
Other assets | 9,333 | 9,485 | ||||||
$ | 2,647,685 | $ | 2,556,161 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of lease liabilities | $ | 71,174 | $ | 69,421 | ||||
Accounts payable | 352,694 | 239,666 | ||||||
Accrued expenses and other current liabilities | 185,630 | 152,630 | ||||||
Total current liabilities | 609,498 | 461,717 | ||||||
Long-term obligations: | ||||||||
Borrowings under revolving credit agreement | 668 | 155,700 | ||||||
Operating lease liabilities, net of current portion | 149,075 | 154,271 | ||||||
Finance lease liabilities, net of current portion | 3,569 | 2,009 | ||||||
Total long-term obligations | 153,312 | 311,980 | ||||||
Deferred income taxes and other liabilities | 74,937 | 67,697 | ||||||
Commitments and contingencies | ||||||||
Watsco, Inc. shareholders’ equity: | ||||||||
Common stock, $0.50 par value | 18,830 | 18,768 | ||||||
Class B common stock, $0.50 par value | 2,830 | 2,765 | ||||||
Preferred stock, $0.50 par value | — | — | ||||||
Paid-in capital | 940,015 | 907,877 | ||||||
Accumulated other comprehensive loss, net of tax | (43,245 | ) | (39,050 | ) | ||||
Retained earnings | 658,622 | 632,507 | ||||||
Treasury stock, at cost | (87,440 | ) | (87,440 | ) | ||||
Total Watsco, Inc. shareholders’ equity | 1,489,612 | 1,435,427 | ||||||
Non-controlling interest | 320,326 | 279,340 | ||||||
Total shareholders’ equity | 1,809,938 | 1,714,767 | ||||||
$ | 2,647,685 | $ | 2,556,161 | |||||
(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 , 2019 | 38,194,056 | $ | 21,533 | $ | 907,877 | $ | (39,050 | ) | $ | 632,507 | $ | (87,440 | ) | $ | 279,340 | $ | 1,714,767 | |||||||||||||||
Net income | 30,502 | 5,745 | 36,247 | |||||||||||||||||||||||||||||
Other comprehensive (loss) | (12,739 | ) | (6,541 | ) | (19,280 | ) | ||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock | 113,765 | 57 | (57 | ) | — | |||||||||||||||||||||||||||
Common stock contribution to 401 (k) plan | 25,216 | 13 | 4,530 | 4,543 | ||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan | 18,674 | 9 | 2,532 | 2,541 | ||||||||||||||||||||||||||||
Retirement of common stock | (4,828 | ) | (2 | ) | (789 | ) | (791 | ) | ||||||||||||||||||||||||
Share-based compensation | 6,097 | 6,097 | ||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $1.60 per share | (61,238 | ) | (61,238 | ) | ||||||||||||||||||||||||||||
Balance at March 31 , 2020 | 38,346,883 | 21,610 | 920,190 | (51,789 | ) | 601,771 | (87,440 | ) | 278,544 | 1,682,886 | ||||||||||||||||||||||
Net income | 86,578 | 17,664 | 104,242 | |||||||||||||||||||||||||||||
Other comprehensive income | 5,521 | 2,835 | 8,356 | |||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock | 15,500 | 8 | (8 | ) | — | |||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan | 32,073 | 16 | 4,529 | 4,545 | ||||||||||||||||||||||||||||
Retirement of common stock | (6,377 | ) | (4 | ) | (1,092 | ) | (1,096 | ) | ||||||||||||||||||||||||
Share-based compensation | 5,226 | 5,226 | ||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $1.775 per share | (68,077 | ) | (68,077 | ) | ||||||||||||||||||||||||||||
Balance at June 30 , 2020 | 38,388,079 | 21,630 | 928,845 | (46,268 | ) | 620,272 | (87,440 | ) | 299,043 | 1,736,082 | ||||||||||||||||||||||
Net income | 106,489 | 19,717 | 126,206 | |||||||||||||||||||||||||||||
Other comprehensive income | 3,023 | 1,566 | 4,589 | |||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock | 20,000 | 10 | (10 | ) | — | |||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock | (3,589 | ) | (2 | ) | 2 | — | ||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan | 55,473 | 28 | 8,438 | 8,466 | ||||||||||||||||||||||||||||
Retirement of common stock | (11,943 | ) | (6 | ) | (2,749 | ) | (2,755 | ) | ||||||||||||||||||||||||
Share-based compensation | 5,489 | 5,489 | ||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $1.775 per share | (68,139 | ) | (68,139 | ) | ||||||||||||||||||||||||||||
Balance at September 30 , 2020 | 38,448,020 | $ | 21,660 | $ | 940,015 | $ | (43,245 | ) | $ | 658,622 | $ | (87,440 | ) | $ | 320,326 | $ | 1,809,938 | |||||||||||||||
(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 , 2018 | 37,461,643 | $ | 21,167 | $ | 832,121 | $ | (45,968 | ) | $ | 627,969 | $ | (87,440 | ) | $ | 253,864 | $ | 1,601,713 | |||||||||||||||
Net income | 35,037 | 8,767 | 43,804 | |||||||||||||||||||||||||||||
Other comprehensive income | 2,783 | 1,412 | 4,195 | |||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock | 77,049 | 39 | (39 | ) | — | |||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock | (5,000 | ) | (3 | ) | 3 | — | ||||||||||||||||||||||||||
Common stock contribution to 401 (k) plan | 30,715 | 15 | 4,259 | 4,274 | ||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan | 8,925 | 4 | 1,121 | 1,125 | ||||||||||||||||||||||||||||
Retirement of common stock | (2,985 | ) | (1 | ) | (427 | ) | (428 | ) | ||||||||||||||||||||||||
Share-based compensation | 4,537 | 4,537 | ||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $1.60 per share | (59,965 | ) | (59,965 | ) | ||||||||||||||||||||||||||||
Balance at March 31 , 2019 | 37,570,347 | 21,221 | 841,575 | (43,185 | ) | 603,041 | (87,440 | ) | 264,043 | 1,599,255 | ||||||||||||||||||||||
Net income | 90,155 | 17,755 | 107,910 | |||||||||||||||||||||||||||||
Other comprehensive income | 3,039 | 1,613 | 4,652 | |||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock | 26,354 | 13 | (13 | ) | — | |||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan | 15,807 | 9 | 1,942 | 1,951 | ||||||||||||||||||||||||||||
Retirement of common stock | (3,608 | ) | (2 | ) | (553 | ) | (555 | ) | ||||||||||||||||||||||||
Share-based compensation | 4,324 | 4,324 | ||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $1.60 per share | (60,213 | ) | (60,213 | ) | ||||||||||||||||||||||||||||
Common stock issued for Dunphey & Associates Supply Co., Inc. | 50,952 | 25 | 7,425 | 7,450 | ||||||||||||||||||||||||||||
Investment in unconsolidated entity | 988 | 988 | ||||||||||||||||||||||||||||||
Decrease in non-controlling interest in Carrier Enterprise II | (25,768 | ) | (6,632 | ) | (32,400 | ) | ||||||||||||||||||||||||||
Balance at June 30 , 2019 | 37,659,852 | 21,266 | 828,932 | (40,146 | ) | 632,983 | (87,440 | ) | 277,767 | 1,633,362 | ||||||||||||||||||||||
Net income | 83,480 | 16,175 | 99,655 | |||||||||||||||||||||||||||||
Other comprehensive (loss) | (1,894 | ) | (1,029 | ) | (2,923 | ) | ||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock | 37,834 | 19 | (19 | ) | — | |||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock | (5,337 | ) | (3 | ) | 3 | — | ||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan | 36,374 | 19 | 4,510 | 4,529 | ||||||||||||||||||||||||||||
Retirement of common stock | (4,030 | ) | (2 | ) | (667 | ) | (669 | ) | ||||||||||||||||||||||||
Share-based compensation | 3,706 | 3,706 | ||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $1.60 per share | (60,276 | ) | (60,276 | ) | ||||||||||||||||||||||||||||
Common stock issued for Peirce-Phelps, Inc. | 372,543 | 186 | 58,452 | 58,638 | ||||||||||||||||||||||||||||
Investment in Peirce-Phelps, Inc. | 17,000 | 17,000 | ||||||||||||||||||||||||||||||
Balance at September 30 , 2019 | 38,097,236 | $ | 21,485 | $ | 894,917 | $ | (42,040 | ) | $ | 656,187 | $ | (87,440 | ) | $ | 309,913 | $ | 1,753,022 | |||||||||||||||
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 266,695 | $ | 251,369 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 19,350 | 17,983 | ||||||
Share-based compensation | 15,802 | 11,992 | ||||||
Non-cash contribution to 401(k) plan | 4,543 | 4,274 | ||||||
Deferred income tax provision | 3,177 | 2,765 | ||||||
Other income from investment in unconsolidated entity | (9,172 | ) | (7,939 | ) | ||||
Other, net | 1,776 | 1,260 | ||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable | (113,017 | ) | (102,813 | ) | ||||
Inventories | 34,448 | (74,448 | ) | |||||
Accounts payable and other liabilities | 158,094 | 99,627 | ||||||
Other, net | (8,918 | ) | (6,539 | ) | ||||
Net cash provided by operating activities | 372,778 | 197,531 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (11,608 | ) | (14,007 | ) | ||||
Business acquisitions, net of cash acquired | — | (47,343 | ) | |||||
Investment in unconsolidated entity | — | (4,940 | ) | |||||
Proceeds from sale of property and equipment | 61 | 1,295 | ||||||
Net cash used in investing activities | (11,547 | ) | (64,995 | ) | ||||
Cash flows from financing activities: | ||||||||
Dividends on Common and Class B common stock | (197,454 | ) | (180,454 | ) | ||||
Net (repayments) proceeds under revolving credit agreement | (155,032 | ) | 34,100 | |||||
Repurchases of common stock to satisfy employee withholding tax obligations | (2,299 | ) | (1,528 | ) | ||||
Net repayments of long-term obligations | (1,003 | ) | (920 | ) | ||||
Payment of fees related to revolving credit agreement | (189 | ) | — | |||||
Proceeds from non-controlling interest for investment in unconsolidated entity | — | 988 | ||||||
Purchase of additional ownership from non-controlling interest | — | (32,400 | ) | |||||
Proceeds from non-controlling interest for investment in Peirce-Phelps, Inc. | — | 17,000 | ||||||
Net proceeds from issuances of common stock | 13,207 | 7,480 | ||||||
Net cash used in financing activities | (342,770 | ) | (155,734 | ) | ||||
Effect of foreign exchange rate changes on cash and cash equivalents | (315 | ) | 454 | |||||
Net increase (decrease) in cash and cash equivalents | 18,146 | (22,744 | ) | |||||
Cash and cash equivalents at beginning of period | 74,454 | 82,894 | ||||||
Cash and cash equivalents at end of period | $ | 92,600 | $ | 60,150 | ||||
Supplemental cash flow information: | ||||||||
Common stock issued for Peirce-Phelps, Inc. | — | $ | 58,638 | |||||
Common stock issued for Dunphey & Associates Supply Co., Inc. | — | $ | 7,450 |
1. | BASIS OF PRESENTATION |
REVENUES |
Quarters Ended March 31, | 2020 | 2019 | ||||||
Primary Geographical Regions: | ||||||||
United States | $ | 899,545 | $ | 806,511 | ||||
Canada | 55,341 | 59,256 | ||||||
Latin America and the Caribbean | 53,270 | 65,511 | ||||||
$ | 1,008,156 | $ | 931,278 | |||||
Major Product Lines: | ||||||||
HVAC equipment | 66 | % | 67 | % | ||||
Other HVAC products | 30 | % | 29 | % | ||||
Commercial refrigeration products | 4 | % | 4 | % | ||||
100 | % | 100 | % | |||||
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Primary Geographical Regions: | ||||||||||||||||
United States | $ | 1,391,340 | $ | 1,232,564 | $ | 3,517,533 | $ | 3,258,283 | ||||||||
Canada | 91,429 | 85,422 | 218,687 | 222,429 | ||||||||||||
Latin America and the Caribbean | 53,902 | 76,929 | 163,992 | 217,335 | ||||||||||||
$ | 1,536,671 | $ | 1,394,915 | $ | 3,900,212 | $ | 3,698,047 | |||||||||
Major Product Lines: | ||||||||||||||||
HVAC equipment | 70 | % | 68 | % | 70 | % | 68 | % | ||||||||
Other HVAC products | 27 | % | 29 | % | 27 | % | 28 | % | ||||||||
Commercial refrigeration products | 3 | % | 3 | % | 3 | % | 4 | % | ||||||||
100 | % | 100 | % | 100 | % | 100 | % | |||||||||
EARNINGS PER SHARE |
Quarters Ended March 31, | 2020 | 2019 | ||||||
Basic Earnings per Share: | ||||||||
Net income attributable to Watsco, Inc. shareholders | $ | 30,502 | $ | 35,037 | ||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock | 5,233 | 4,924 | ||||||
Earnings allocated to Watsco, Inc. shareholders | $ | 25,269 | $ | 30,113 | ||||
Weighted-average common shares outstanding – Basic | 34,995,048 | 34,388,117 | ||||||
Basic earnings per share for Common and Class B common stock | $ | 0.72 | $ | 0.88 | ||||
Allocation of earnings for Basic: | ||||||||
Common stock | $ | 23,409 | $ | 27,856 | ||||
Class B common stock | 1,860 | 2,257 | ||||||
$ | 25,269 | $ | 30,113 | |||||
Diluted Earnings per Share: | ||||||||
Net income attributable to Watsco, Inc. shareholders | $ | 30,502 | $ | 35,037 | ||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock | 5,233 | 4,924 | ||||||
Earnings allocated to Watsco, Inc. shareholders | $ | 25,269 | $ | 30,113 | ||||
Weighted-average common shares outstanding – Basic | 34,995,048 | 34,388,117 | ||||||
Effect of dilutive stock options | 28,941 | 14,485 | ||||||
Weighted-average common shares outstanding – Diluted | 35,023,989 | 34,402,602 | ||||||
Diluted earnings per share for Common and Class B common stock | $ | 0.72 | $ | 0.88 | ||||
Anti-dilutive stock options not included above | 164,130 | 322,584 |
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Basic Earnings per Share: | ||||||||||||||||
Net income attributable to Watsco, Inc. shareholders | $ | 106,489 | $ | 83,480 | $ | 223,569 | $ | 208,672 | ||||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock | 9,146 | 6,973 | 19,178 | 17,326 | ||||||||||||
Earnings allocated to Watsco, Inc. shareholders | $ | 97,343 | $ | 76,507 | $ | 204,391 | $ | 191,346 | ||||||||
Weighted-average common shares outstanding - Basic | 35,099,871 | 34,755,627 | 35,046,156 | 34,544,425 | ||||||||||||
Basic earnings per share for Common and Class B common stock | $ | 2.77 | $ | 2.20 | $ | 5.83 | $ | 5.54 | ||||||||
Allocation of earnings for Basic: | ||||||||||||||||
Common stock | $ | 90,197 | $ | 70,836 | $ | 189,364 | $ | 177,075 | ||||||||
Class B common stock | 7,146 | 5,671 | 15,027 | 14,271 | ||||||||||||
$ | 97,343 | $ | 76,507 | $ | 204,391 | $ | 191,346 | |||||||||
Diluted Earnings per Share: | ||||||||||||||||
Net income attributable to Watsco, Inc. shareholders | $ | 106,489 | $ | 83,480 | $ | 223,569 | $ | 208,672 | ||||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock | 9,135 | 6,971 | 19,175 | 17,325 | ||||||||||||
Earnings allocated to Watsco, Inc. shareholders | $ | 97,354 | $ | 76,509 | $ | 204,394 | $ | 191,347 | ||||||||
Weighted-average common shares outstanding - Basic | 35,099,871 | 34,755,627 | 35,046,156 | 34,544,425 | ||||||||||||
Effect of dilutive stock options | 137,151 | 33,328 | 62,887 | 25,294 | ||||||||||||
Weighted-average common shares outstanding - Diluted | 35,237,022 | 34,788,955 | 35,109,043 | 34,569,719 | ||||||||||||
Diluted earnings per share for Common and Class B common stock | $ | 2.76 | $ | 2.20 | $ | 5.82 | $ | 5.54 | ||||||||
Anti-dilutive stock options not included above | 3,750 | 183,083 | �� | 27,755 | 220,013 |
4. | OTHER COMPREHENSIVE INCOME (LOSS) |
Quarters Ended March 31, | 2020 | 2019 | ||||||
Foreign currency translation adjustment | $ | (21,929 | ) | $ | 5,005 | |||
�� | ||||||||
Unrealized gain (loss) on cash flow hedging instruments | 3,473 | (735 | ) | |||||
Income tax (expense) benefit | (939 | ) | 199 | |||||
Unrealized gain (loss) on cash flow hedging instruments, net of tax | 2,534 | (536 | ) | |||||
Reclassification of loss (gain) on cash flow hedging instruments into earnings | 157 | (375 | ) | |||||
Income tax (benefit) expense | (42 | ) | 101 | |||||
Reclassification of loss (gain) on cash flow hedging instruments into earnings, net of tax | 115 | (274 | ) | |||||
Other comprehensive (loss) income | $ | (19,280 | ) | $ | 4,195 | |||
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Foreign currency translation adjustment | $ | 5,514 | $ | (3,038 | ) | $ | (6,592 | ) | $ | 7,264 | ||||||
Unrealized (loss) gain on cash flow hedging instruments | (570 | ) | 351 | 1,297 | (1,093 | ) | ||||||||||
Income tax benefit (expense) | 154 | (96 | ) | (349 | ) | 295 | ||||||||||
Unrealized (loss) gain on cash flow hedging instruments, net of tax | (416 | ) | 255 | 948 | (798 | ) | ||||||||||
Reclassification of gain on cash flow hedging instruments into earnings | (697 | ) | (191 | ) | (946 | ) | (742 | ) | ||||||||
Income tax expense | 188 | 51 | 255 | 200 | ||||||||||||
Reclassification of gain on cash flow hedging instruments into earnings, net of tax | (509 | ) | (140 | ) | (691 | ) | (542 | ) | ||||||||
Other comprehensive income (loss) | $ | 4,589 | $ | (2,923 | ) | $ | (6,335 | ) | $ | 5,924 | ||||||
Quarters Ended March 31, | 2020 | 2019 | ||||||
Foreign currency translation adjustment: | ||||||||
Beginning balance | $ | (38,599 | ) | $ | (46,604 | ) | ||
Current period other comprehensive (loss) income | (14,328 | ) | 3,269 | |||||
Ending balance | (52,927 | ) | (43,335 | ) | ||||
Cash flow hedging instruments: | ||||||||
Beginning balance | (451 | ) | 636 | |||||
Current period other comprehensive income (loss) | 1,520 | (322 | ) | |||||
Reclassification adjustment | 69 | (164 | ) | |||||
Ending balance | 1,138 | 150 | ||||||
Accumulated other comprehensive loss, net of tax | $ | (51,789 | ) | $ | (43,185 | ) | ||
Nine Months Ended September 30, | 2020 | 2019 | ||||||
Foreign currency translation adjustment: | ||||||||
Beginning balance | $ | (38,599 | ) | $ | (46,604 | ) | ||
Current period other comprehensive (loss) income | (4,349 | ) | 4,732 | |||||
Ending balance | (42,948 | ) | (41,872 | ) | ||||
Cash flow hedging instruments: | ||||||||
Beginning balance | (451 | ) | 636 | |||||
Current period other comprehensive income (loss) | 568 | (479 | ) | |||||
Reclassification adjustment | (414 | ) | (325 | ) | ||||
Ending balance | (297 | ) | (168 | ) | ||||
Accumulated other comprehensive loss, net of tax | $ | (43,245 | ) | $ | (42,040 | ) | ||
PURCHASE OF OWNERSHIP INTEREST FROM JOINT VENTURE |
6. | INVESTMENT IN UNCONSOLIDATED ENTITY |
7. | ACQUISITIONS |
Cash and cash equivalents | $ | 4,299 | ||
Accounts receivable | 30,719 | |||
Inventories | 45,491 | |||
Other current assets | 135 | |||
Property and equipment | 2,544 | |||
Operating lease right-of-use | 19,072 | |||
Goodwill | 9,884 | |||
Intangibles | 19,000 | |||
Other assets | 299 | |||
Accounts payable | (11,079 | ) | ||
Accrued expenses and other current liabilities | (13,038 | ) | ||
Operating lease liabilities, net of current portion | (14,100 | ) | ||
Total | $ | 93,226 | ||
8. | DEBT |
9. | DERIVATIVES |
Quarters Ended March 31, | 2020 | 2019 | ||||||
Gain (loss) recorded in accumulated other comprehensive loss | $ | 3,473 | $ | (735 | ) | |||
Loss (gain) reclassified from accumulated other comprehensive loss into earnings | $ | 157 | $ | (375 | ) |
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Loss) gain recorded in accumulated other comprehensive loss | $ | (570 | ) | $ | 351 | $ | 1,297 | $ | (1,093 | ) | ||||||
Gain reclassified from accumulated other comprehensive loss into earnings | $ | (697 | ) | $ | (191 | ) | $ | (946 | ) | $ | (742 | ) |
Asset Derivatives | Liability Derivatives | |||||||||||||||
September 30, 2020 | December 31, 2019 | September 30, 2020 | December 31, 2019 | |||||||||||||
Derivatives designated as hedging instruments | $ | — | $ | — | $ | 394 | $ | 944 | ||||||||
Derivatives not designated as hedging instruments | 6 | — | — | 63 | ||||||||||||
Total derivative instruments | $ | 6 | $ | — | $ | 394 | $ | 1,007 | ||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||
March 31, 2020 | December 31, 2019 | March 31, 2020 | December 31, 2019 | |||||||||||||
Derivatives designated as hedging instruments | $ | 2,604 | $ | — | $ | 56 | $ | 944 | ||||||||
Derivatives not designated as hedging instruments | 122 | — | 4 | 63 | ||||||||||||
Total derivative instruments | $ | 2,726 | $ | — | $ | 60 | $ | 1,007 | ||||||||
FAIR VALUE MEASUREMENTS |
Balance Sheet Location | Total | Fair Value Measurements at March 31, 2020 Using | ||||||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Assets: | ||||||||||||||||||||
Derivative financial instruments | Other current assets | $ | 2,726 | $ | — | $ | 2,726 | $ | — | |||||||||||
Equity securities | Other assets | $ | 269 | $ | 269 | $ | — | $ | — | |||||||||||
Liabilities: | ||||||||||||||||||||
Derivative financial instruments | Accrued expenses and other current liabilities | $ | 60 | $ | — | $ | 60 | $ | — |
Balance Sheet Location | Total | Fair Value Measurements at December 31, 2019 Using | ||||||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Assets: | ||||||||||||||||||||
Equity securities | Other assets | $ | 402 | $ | 402 | $ | — | $ | — | |||||||||||
Liabilities: | ||||||||||||||||||||
Derivative financial instruments | Accrued expenses and other current liabilities | $ | 1,007 | $ | — | $ | 1,007 | $ | — |
Total | Fair Value Measurements at September 30, 2020 Using | |||||||||||||||||||
Balance Sheet Location | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Assets: | ||||||||||||||||||||
Derivative financial instruments | Other current assets | $ | 6 | $ | — | $ | 6 | $ | — | |||||||||||
Equity securities | Other assets | $ | 442 | $ | 442 | $ | — | $ | — | |||||||||||
Liabilities: | ||||||||||||||||||||
Derivative financial instruments | Accrued expenses and other current liabilities | $ | 394 | $ | — | $ | 394 | $ | — | |||||||||||
Total | Fair Value Measurements at December 31, 2019 Using | |||||||||||||||||||
Balance Sheet Location | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Assets: | ||||||||||||||||||||
Equity securities | Other assets | $ | 402 | $ | 402 | $ | — | $ | — | |||||||||||
Liabilities: | ||||||||||||||||||||
Derivative financial instruments | Accrued expenses and other current liabilities | $ | 1,007 | $ | — | $ | 1,007 | $ | — |
SHAREHOLDERS’ EQUITY |
COMMITMENTS AND CONTINGENCIES |
RELATED PARTY TRANSACTIONS |
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 nine months ended September 30, 2020 and 2019, fees to this firm for services performed were $28, $175, $28, and $175, respectively, and $28 was payable at September 30, 2020. |
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales | 75.7 | 76.0 | 75.9 | 75.8 | ||||||||||||
Gross profit | 24.3 | 24.0 | 24.1 | 24.2 | ||||||||||||
Selling, general and administrative expenses | 14.4 | 15.3 | 15.9 | 15.9 | ||||||||||||
Other income | 0.3 | 0.3 | 0.2 | 0.2 | ||||||||||||
Operating income | 10.2 | 9.0 | 8.5 | 8.5 | ||||||||||||
Interest expense, net | 0.0 | 0.1 | 0.0 | 0.1 | ||||||||||||
Income before income taxes | 10.2 | 8.9 | 8.5 | 8.4 | ||||||||||||
Income taxes | 2.0 | 1.7 | 1.6 | 1.6 | ||||||||||||
Net income | 8.2 | 7.1 | 6.8 | 6.8 | ||||||||||||
Less: net income attributable to non-controlling interest | 1.3 | 1.2 | 1.1 | 1.2 | ||||||||||||
Net income attributable to Watsco, Inc. | 6.9 | % | 6.0 | % | 5.7 | % | 5.6 | % | ||||||||
2020 | 2019 | |||||||
Revenues | 100.0 | % | 100.0 | % | ||||
Cost of sales | 75.4 | 74.9 | ||||||
Gross profit | 24.6 | 25.1 | ||||||
Selling, general and administrative expenses | 20.2 | 19.3 | ||||||
Other income | 0.1 | 0.2 | ||||||
Operating income | 4.5 | 5.9 | ||||||
Interest expense, net | 0.1 | 0.1 | ||||||
Income before income taxes | 4.4 | 5.8 | ||||||
Income taxes | 0.8 | 1.1 | ||||||
Net income | 3.6 | 4.7 | ||||||
Less: net income attributable to non-controlling interest | 0.6 | 0.9 | ||||||
Net income attributable to Watsco, Inc. | 3.0 | % | 3.8 | % | ||||
Locations | |||||
September 30, 2019 | 603 | ||||
Acquired | 7 | ||||
Closed | (4 | ) | |||
December 31, | 606 | ||||
Opened | 3 | ||||
Closed | (6 | ) | |||
September 30, 2020 | 603 | ||||
2020 | 2019 | Change | ||||||||||
Cash flows provided by operating activities | $ | 41.9 | $ | 52.9 | $ | (11.0 | ) | |||||
Cash flows used in investing activities | $ | (3.8 | ) | $ | (4.1 | ) | $ | 0.3 | ||||
Cash flows used in financing activities | $ | (59.4 | ) | $ | (54.9 | ) | $ | (4.5 | ) |
2020 | 2019 | Change | ||||||||||
Cash flows provided by operating activities | $ | 372.8 | $ | 197.5 | $ | 175.3 | ||||||
Cash flows used in investing activities | $ | (11.5 | ) | $ | (65.0 | ) | $ | 53.5 | ||||
Cash flows used in financing activities | $ | (342.8 | ) | $ | (155.7 | ) | $ | (187.1 | ) |
31.1 # | ||||
31.2 # | ||||
31.3 # | ||||
32.1 + | ||||
101.INS # | ||||
101.SCH # | ||||
Inline XBRL Taxonomy Extension Schema Document. | ||||
101.CAL # | ||||
Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
101.DEF # | ||||
Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||
101.LAB # | ||||
Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||
101.PRE # | ||||
Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
104 | ||||
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
# | filed herewith. |
+ | furnished herewith. |
WATSCO, INC. | |||||||||
(Registrant) | |||||||||
Date: | By: | /s/ Ana M. Menendez | |||||||
Ana M. Menendez | |||||||||
Chief Financial Officer (on behalf of the Registrant and as Principal Financial Officer) |