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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Item 2. |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 5. |
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Item 6. |
25 | |||||
26 | ||||||
EXHIBITS |
Quarter Ended June 30, |
Six Months Ended June 30, |
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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: |
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Basic |
$ |
$ | $ |
$ | ||||||||||||
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Diluted |
$ |
$ | $ |
$ | ||||||||||||
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Quarter Ended June 30, |
Six Months Ended June 30, |
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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 |
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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 |
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Current assets: |
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Cash and cash equivalents |
$ |
$ | ||||||
Accounts receivable, net |
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Inventories, net |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use |
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Goodwill |
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Intangible assets, net |
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Investment in unconsolidated entity |
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Other assets |
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$ |
$ | |||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Current portion of long-term obligations |
$ |
$ | ||||||
Borrowings under revolving credit agreement |
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Accounts payable |
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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 |
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Operating lease liabilities, net of current portion |
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Finance lease liabilities, net of current portion |
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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: |
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Common stock, $ |
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Class B common stock, $ |
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Preferred stock, $ |
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Paid-in capital |
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Accumulated other comprehensive loss, net of tax |
( |
) |
( |
) | ||||
Retained earnings |
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Treasury stock, at cost |
( |
) |
( |
) | ||||
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Total Watsco, Inc. shareholders’ equity |
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Non-controlling interest |
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Total shareholders’ equity |
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$ |
$ | |||||||
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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 |
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Balance at December 31, 2022 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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Net income |
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Other comprehensive income |
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Issuances of restricted shares of common stock |
( |
) |
— |
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Forfeitures of restricted shares of common stock |
( |
) |
( |
) |
— |
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Common stock contribution to 401(k) plan |
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Stock issuances from exercise of stock options and employee stock purchase plan |
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Issuance of Class B common stock |
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Retirement of common stock |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
Share-based compensation |
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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 |
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Issuances of restricted shares of common stock |
( |
) |
— |
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Forfeitures of restricted shares of common stock |
( |
) |
— |
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Stock issuances from exercise of stock options and employee stock purchase plan |
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Retirement of common stock |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
Share-based compensation |
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Net proceeds from the sale of Common stock |
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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 |
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Balance at December 31, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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Net income |
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Other comprehensive income |
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Issuances of restricted shares of common stock |
( |
) |
— |
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Common stock contribution to 401(k) plan |
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Stock issuances from exercise of stock options and employee stock purchase plan |
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Share-based compensation |
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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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( |
) |
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Net income |
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Other comprehensive (loss) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||
Issuances of restricted shares of common stock |
( |
) |
— |
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Forfeitures of restricted shares of common stock |
( |
) |
( |
) |
— |
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Common stock contribution to 401(k) plan |
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Stock issuances from exercise of stock options and employee stock purchase plan |
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Retirement of common stock |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
Share-based compensation |
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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, |
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2023 | 2022 | |||||||
Cash flows from operating activities: |
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Net income |
$ |
$ |
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Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
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Share-based compensation |
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Provision for doubtful accounts |
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Deferred income tax provision |
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Other income from investment in unconsolidated entity |
( |
) |
( |
) | ||||
Other, net |
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Changes in operating assets and liabilities, net of effects of acquisitions: |
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Accounts receivable, net |
( |
) |
( |
) | ||||
Inventories, net |
( |
) |
( |
) | ||||
Accounts payable and other liabilities |
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Other, net |
( |
) |
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Net cash (used in) provided by operating activities |
( |
) |
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Cash flows from investing activities: |
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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: |
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Net proceeds under current revolving credit agreement |
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Net proceeds from the sale of Common stock |
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Net proceeds from issuances of Common stock under employee-related plans |
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Payment of fees related to revolving credit agreement |
( |
) |
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Net repayments of finance lease liabilities |
( |
) |
( |
) | ||||
Repurchases of common stock to satisfy employee withholding tax obligations |
( |
) |
( |
) | ||||
Net (repayments) proceeds under prior revolving credit agreement |
( |
) |
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Dividends on Common and Class B common stock |
( |
) |
( |
) | ||||
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Net cash provided by (used in) financing activities |
( |
) | ||||||
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Effect of foreign exchange rate changes on cash and cash equivalents |
( |
) | ||||||
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
$ |
$ |
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Quarter Ended June 30, |
Six Months Ended June 30, |
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2023 | 2022 | 2023 | 2022 | |||||||||||||
Primary Geographical Regions: |
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United States |
$ |
$ | $ |
$ | ||||||||||||
Canada |
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Latin America and the Caribbean |
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$ |
$ | $ |
$ | |||||||||||||
Major Product Lines: |
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HVAC equipment |
% |
% | % |
% | ||||||||||||
Other HVAC products |
% |
% | % |
% | ||||||||||||
Commercial refrigeration products |
% |
% | % |
% | ||||||||||||
% |
% | % |
% | |||||||||||||
Quarter Ended June 30, |
Six Months Ended June 30, |
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2023 | 2022 | 2023 | 2022 | |||||||||||||
Basic Earnings per Share: |
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Net income attributable to Watsco, Inc. shareholders |
$ |
$ | $ |
$ | ||||||||||||
Less: distributed and undistributed earnings allocated to restricted common stock |
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Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | $ |
$ | ||||||||||||
Weighted-average common shares outstanding—Basic |
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Basic earnings per share for Common and Class B common stock |
$ |
$ | $ |
$ | ||||||||||||
Allocation of earnings for Basic: |
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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 |
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Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | $ |
$ | ||||||||||||
Weighted-average common shares outstanding—Basic |
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Effect of dilutive stock options |
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Weighted-average common shares outstanding—Diluted |
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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 |
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June 30, 2023 |
December 31, 2022 |
June 30, 2023 |
December 31, 2022 |
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Derivatives designated as hedging instruments |
$ |
$ | $ |
$ | ||||||||||||
Derivatives not designated as hedging instruments |
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Total derivative instruments |
$ |
$ | $ |
$ | ||||||||||||
Total |
Fair Value Measurements at June 30, 2023 Using |
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Balance Sheet Location |
Level 1 |
Level 2 |
Level 3 |
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Assets: |
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Derivative financial instruments |
Other current assets | $ |
— |
$ |
— |
|||||||||||||||
Equity securities |
Other assets | $ |
$ |
— |
— |
|||||||||||||||
Private equities |
Other assets | $ |
— |
— |
$ |
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Total | Fair Value Measurements at December 31, 2022 Using |
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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) |