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 | ||
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
Emerging growth company |
Page No. |
||||||
Item 1. |
||||||
3 |
||||||
4 |
||||||
5 |
||||||
6 |
||||||
8 |
||||||
9 |
||||||
Item 2. |
14 |
|||||
Item 3. |
20 |
|||||
Item 4. |
20 |
|||||
Item 1. |
21 |
|||||
Item 1A. |
21 |
|||||
Item 2. |
21 |
|||||
Item 6. |
22 |
|||||
23 |
||||||
EXHIBITS |
Quarters Ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenues |
$ |
$ | ||||||
Cost of sales |
||||||||
|
|
|
|
|||||
Gross profit |
||||||||
Selling, general and administrative expenses |
||||||||
Other income |
||||||||
|
|
|
|
|||||
Operating income |
||||||||
Interest expense, net |
||||||||
|
|
|
|
|||||
Income before income taxes |
||||||||
Income taxes |
||||||||
|
|
|
|
|||||
Net income |
||||||||
Less: net income attributable to non-controlling interest |
||||||||
|
|
|
|
|||||
Net income attributable to Watsco, Inc. |
$ |
$ | ||||||
|
|
|
|
|||||
Earnings per share for Common and Class B common stock: |
||||||||
Basic and Diluted |
$ |
$ | ||||||
|
|
|
|
Quarters Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net income |
$ |
$ | ||||||
Other comprehensive income (loss), net of tax |
||||||||
Foreign currency translation adjustment |
( |
) | ||||||
Unrealized gain on cash flow hedging instruments arising during the period |
||||||||
Reclassification of loss on cash flow hedging instruments into earnings |
||||||||
|
|
|
|
|||||
Other comprehensive income (loss) |
( |
) | ||||||
Comprehensive income |
||||||||
Less: comprehensive income (loss) attributable to non-controlling interest |
( |
) | ||||||
|
|
|
|
|||||
Comprehensive income attributable to Watsco, Inc. |
$ |
$ | ||||||
|
|
|
|
March 31, 2021 |
December 31, 2020 |
|||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ |
$ | ||||||
Accounts receivable, net |
||||||||
Inventories, net |
||||||||
Other current assets |
||||||||
Total current assets |
||||||||
Property and equipment, net |
||||||||
Operating lease right-of-use |
||||||||
Goodwill |
||||||||
Intangible assets, net |
||||||||
Investment in unconsolidated entity |
||||||||
Other assets |
||||||||
$ |
$ | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term obligations |
$ |
$ | ||||||
Accounts payable |
||||||||
Accrued expenses and other current liabilities |
||||||||
Total current liabilities |
||||||||
Long-term obligations: |
||||||||
Borrowings under revolving credit agreement |
||||||||
Operating lease liabilities, net of current portion |
||||||||
Finance lease liabilities, net of current portion |
||||||||
Total long-term obligations |
||||||||
Deferred income taxes and other liabilities |
||||||||
Commitments and contingencies |
||||||||
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 |
( |
) |
( |
) | ||||
Total Watsco, Inc. shareholders’ equity |
||||||||
Non-controlling interest |
||||||||
Total shareholders’ equity |
||||||||
$ |
$ | |||||||
(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, 2020 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock |
( |
) | — | |||||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock |
( |
) | ( |
) | — | |||||||||||||||||||||||||||
Common stock contribution to 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, $ |
( |
) | ( |
) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at March 31, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive (loss) |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Issuances of non-vested 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, $ |
( |
) | ( |
) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at March 31, 2020 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended March 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: |
||||||||
Net i n come |
$ |
$ | ||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||
Depreciation and amortization |
||||||||
Share-based compensation |
||||||||
Non-cash contribution to 401(k) plan |
||||||||
Provision for doubtful accounts |
||||||||
Other income from investment in unconsolidated entity |
( |
) |
( |
) | ||||
Other, net |
||||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
( |
) |
( |
) | ||||
Inventories, net |
( |
) |
( |
) | ||||
Accounts payable and other liabilities |
||||||||
Other, net |
( |
) |
( |
) | ||||
Net cash (used in) provided by operating activities |
( |
) |
||||||
Cash flows from investing activities: |
||||||||
Proceeds from sale of equity securities |
— | |||||||
Proceeds from sale of property and equipment |
||||||||
Capital expenditures |
( |
) |
( |
) | ||||
Net cash provided by (used in) investing activities |
( |
) | ||||||
Cash flows from financing activities: |
||||||||
Dividends on Common and Class B common stock |
( |
) |
( |
) | ||||
Repayments of finance lease liabilities |
( |
) |
( |
) | ||||
Repurchases of common stock to satisfy employee withholding tax obligations |
— |
( |
) | |||||
Net proceeds from issuances of common stock |
||||||||
Net proceeds under revolving credit agreement |
||||||||
Net cash used in financing activities |
( |
) |
( |
) | ||||
Effect of foreign exchange rate changes on cash and cash equivalents |
( |
) | ||||||
Net decrease in cash and cash equivalents |
( |
) |
( |
) | ||||
Cash and cash equivalents at beginning of period |
||||||||
Cash and cash equivalents at end of period |
$ |
$ | ||||||
1. |
BASIS OF PRESENTATION |
2. |
REVENUES |
Quarters Ended March 31, |
2021 |
2020 |
||||||
Primary Geographical Regions: |
||||||||
United States |
$ |
$ | ||||||
Canada |
||||||||
Latin America and the Caribbean |
||||||||
|
|
|
|
|||||
$ |
$ | |||||||
|
|
|
|
|||||
Major Product Lines: |
||||||||
HVAC equipment |
% |
% | ||||||
Other HVAC products |
% |
% | ||||||
Commercial refrigeration products |
% |
% | ||||||
|
|
|
|
|||||
% |
% | |||||||
|
|
|
|
3. |
EARNINGS PER SHARE |
Quarters Ended March 31, |
2021 |
2020 |
||||||
Basic Earnings per Share: |
||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | ||||||
Less: distributed and undistributed earnings allocated to non-vested 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 non-vested 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 |
4. |
OTHER COMPREHENSIVE INCOME (LOSS) |
Quarters Ended March 31, |
2021 |
2020 |
||||||
Foreign currency translation adjustment |
$ |
$ | ( |
) | ||||
Unrealized gain on cash flow hedging instruments |
||||||||
Income tax expense |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Unrealized gain on cash flow hedging instruments, net of tax |
||||||||
|
|
|
|
|||||
Reclassification of loss on cash flow hedging instruments into earnings |
||||||||
Income tax benefit |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Reclassification of loss on cash flow hedging instruments into earnings, net of tax |
||||||||
|
|
|
|
|||||
Other comprehensive income (loss) |
$ |
$ | ( |
) | ||||
|
|
|
|
Quarters Ended March 31, |
2021 |
2020 |
||||||
Foreign currency translation adjustment: |
||||||||
Beginning balance |
$ |
( |
) |
$ | ( |
) | ||
Current period other comprehensive income (loss) |
( |
) | ||||||
|
|
|
|
|||||
Ending balance |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Cash flow hedging instruments: |
||||||||
Beginning balance |
( |
) |
( |
) | ||||
Current period other comprehensive income |
||||||||
Reclassification adjustment |
||||||||
|
|
|
|
|||||
Ending balance |
||||||||
|
|
|
|
|||||
Accumulated other comprehensive loss, net of tax |
$ |
( |
) |
$ | ( |
) | ||
|
|
|
|
5. |
DERIVATIVES |
Quarters Ended March 31, |
2021 |
2020 |
||||||
Gain recorded in accumulated other comprehensive loss |
$ |
$ | ||||||
Loss reclassified from accumulated other comprehensive loss into earnings |
$ |
$ |
Asset Derivatives |
Liability Derivatives |
|||||||||||||
March 31, 2021 |
December 31, 2020 |
March 31, 2021 |
December 31, 2020 |
|||||||||||
Derivatives designated as hedging instruments |
$ |
— |
$ | — | $ |
— |
$ | |||||||
Derivatives not designated as hedging instruments |
— |
— | ||||||||||||
|
|
|
|
|
|
|
|
|||||||
Total derivative instruments |
$ |
— |
$ | — | $ |
$ | |
|||||||
|
|
|
|
|
|
|
|
6. |
FAIR VALUE MEASUREMENTS |
Total |
Fair Value Measurements at March 31, 2021 Using |
||||||||||||||||||
Balance Sheet Location |
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||
Assets: |
|||||||||||||||||||
Equity securities |
Other assets | $ |
$ |
$ |
— |
$ |
— |
||||||||||||
Liabilities: |
|||||||||||||||||||
Deriv a tive financial instruments |
Accrued expenses and other |
|
$ |
$ |
— |
$ |
$ |
— |
Fair Value Measurements at December 31, 2020 Using |
|||||||||||||||||||
Balance Sheet Location |
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||
Assets: |
|||||||||||||||||||
Equity securities |
Other assets | $ |
$ |
— | — | ||||||||||||||
Liabilities: |
|||||||||||||||||||
Derivative financial instruments |
Accrued expenses and other |
|
$ |
— |
$ |
— |
7. |
SHAREHOLDERS’ EQUITY |
8. |
COMMITMENTS AND CONTINGENCIES |
9. |
RELATED PARTY TRANSACTIONS |
10. |
SUBSEQUENT EVENT |
• | 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; |
• | fluctuations in certain commodity costs; |
• | consumer spending; |
• | consumer debt levels; |
• | the continued impact 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; |
• | foreign currency exchange rate fluctuations; |
• | international risk; |
• | cybersecurity risk; and |
• | the continued viability of our business strategy. |
2021 |
2020 |
|||||||
Revenues |
100.0 |
% |
100.0 |
% | ||||
Cost of sales |
74.1 |
75.4 |
||||||
Gross profit |
25.9 |
24.6 |
||||||
Selling, general and administrative expenses |
19.2 |
20.2 |
||||||
Other income |
0.4 |
0.1 |
||||||
Operating income |
7.2 |
4.5 |
||||||
Interest expense, net |
0.0 |
0.1 |
||||||
Income before income taxes |
7.2 |
4.4 |
||||||
Income taxes |
1.4 |
0.8 |
||||||
Net income |
5.8 |
3.6 |
||||||
Less: net income attributable to non-controlling interest |
1.0 |
0.6 |
||||||
Net income attributable to Watsco, Inc. |
4.8 |
% |
3.0 |
% | ||||
Number of Locations |
||||
March 31, 2020 |
603 |
|||
Opened |
2 |
|||
Closed |
(5 |
) | ||
December 31, 2020 |
600 |
|||
Opened |
2 |
|||
Closed |
(1 |
) | ||
March 31, 2021 |
601 |
|||
• |
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. |
2021 |
2020 |
Change |
||||||||||
Cash flows (used in) provided by operating activities |
$ |
(37.7 |
) |
$ |
41.9 |
$ |
(79.6 |
) | ||||
Cash flows provided by (used in) investing activities |
$ |
1.2 |
$ |
(3.8 |
) |
$ |
5.0 |
|||||
Cash flows used in financing activities |
$ |
(16.3 |
) |
$ |
(59.4 |
) |
$ |
43.1 |
# | filed herewith. |
+ | furnished herewith. |
* | Management contract or compensation plan or arrangement. |
WATSCO, INC .(Registrant) | ||||||
Date: May 6, 2021 | By: | /s/ Ana M. Menendez | ||||
Ana M. Menendez | ||||||
Chief Financial Officer (on behalf of the Registrant and as Principal Financial Officer) |