Company Quick10K Filing
Watsco
Price167.89 EPS8
Shares35 P/E20
MCap5,841 P/FCF30
Net Debt269 EBIT352
TEV6,109 TEV/EBIT17
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-30 Filed 2019-11-01
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-03
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-07-28
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-21
10-Q 2016-09-30 Filed 2016-11-03
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-11-05
10-Q 2015-06-30 Filed 2015-08-06
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-02-24
10-Q 2014-09-30 Filed 2014-11-04
10-Q 2014-06-30 Filed 2014-08-01
10-Q 2014-03-31 Filed 2014-05-01
10-K 2013-12-31 Filed 2014-02-27
10-Q 2013-09-30 Filed 2013-11-01
10-Q 2013-06-30 Filed 2013-08-02
10-Q 2013-03-31 Filed 2013-04-30
10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-09-30 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-09
10-Q 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-01
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-02-26
8-K 2020-04-23 Earnings, Regulation FD, Exhibits
8-K 2020-04-10 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2020-02-13 Earnings, Regulation FD, Exhibits
8-K 2019-10-17 Earnings, Regulation FD, Exhibits
8-K 2019-08-01 Sale of Shares, Other Events, Exhibits
8-K 2019-07-18 Earnings, Regulation FD, Exhibits
8-K 2019-06-03 Shareholder Vote
8-K 2019-04-23 Earnings, Regulation FD, Exhibits
8-K 2019-04-01 Officers
8-K 2019-02-14 Earnings, Regulation FD, Exhibits
8-K 2018-12-11 Officers
8-K 2018-12-05 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-10-25 Earnings, Regulation FD, Exhibits
8-K 2018-07-25 Earnings, Regulation FD, Exhibits
8-K 2018-06-04 Shareholder Vote
8-K 2018-04-24 Earnings, Regulation FD, Exhibits
8-K 2018-03-13 Officers
8-K 2018-02-05 Enter Agreement, Earnings, Regulation FD, Exhibits

WSO 10Q Quarterly Report

Part I.
Item 1. Condensed Consolidated Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 d898966dex101.htm
EX-31.1 d898966dex311.htm
EX-31.2 d898966dex312.htm
EX-31.3 d898966dex313.htm
EX-32.1 d898966dex321.htm

Watsco Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.72.21.61.10.50.02012201420172020
Assets, Equity
1.41.10.80.60.30.02012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
Ops, Inv, Fin

10-Q
2020Q1--12-31falseWATSCO INC0000105016FL 0000105016 2020-01-01 2020-03-31 0000105016 2020-03-31 0000105016 2019-12-31 0000105016 2019-01-01 2019-03-31 0000105016 2019-03-31 0000105016 2018-12-31 0000105016 wso:CarrierAndItsAffiliatesMember us-gaap:SupplierConcentrationRiskMember us-gaap:CostOfGoodsTotalMember 2020-01-01 2020-03-31 0000105016 us-gaap:ForeignExchangeForwardMember us-gaap:CashFlowHedgingMember 2020-01-01 2020-03-31 0000105016 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0000105016 us-gaap:CommonClassBMember 2020-01-01 2020-03-31 0000105016 wso:CarrierAndItsAffiliatesMember us-gaap:SupplierConcentrationRiskMember 2020-01-01 2020-03-31 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember 2020-01-01 2020-03-31 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2020-01-01 2020-03-31 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2020-01-01 2020-03-31 0000105016 us-gaap:CommonStockMember us-gaap:EmployeeStockOptionMember 2020-01-01 2020-03-31 0000105016 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0000105016 us-gaap:NoncontrollingInterestMember 2020-01-01 2020-03-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2020-01-01 2020-03-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0000105016 wso:CommercialRefrigerationProductsMember 2020-01-01 2020-03-31 0000105016 wso:HvacEquipmentMember 2020-01-01 2020-03-31 0000105016 wso:OtherHvacProductsMember 2020-01-01 2020-03-31 0000105016 country:CA 2020-01-01 2020-03-31 0000105016 wso:LatinAmericaAndCaribbeanMember 2020-01-01 2020-03-31 0000105016 country:US 2020-01-01 2020-03-31 0000105016 wso:CommonAndClassBCommonStockMember us-gaap:RestrictedStockMember 2020-01-01 2020-03-31 0000105016 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2020-01-01 2020-03-31 0000105016 us-gaap:CommonStockMember wso:EmployeeStockPurchasePlanMember 2020-01-01 2020-03-31 0000105016 wso:CarrierAndItsAffiliatesMember us-gaap:SupplierConcentrationRiskMember us-gaap:CostOfGoodsTotalMember 2019-01-01 2019-03-31 0000105016 us-gaap:ForeignExchangeForwardMember us-gaap:CashFlowHedgingMember 2019-01-01 2019-03-31 0000105016 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0000105016 us-gaap:CommonClassBMember 2019-01-01 2019-03-31 0000105016 wso:CarrierAndItsAffiliatesMember us-gaap:SupplierConcentrationRiskMember 2019-01-01 2019-03-31 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-03-31 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-01-01 2019-03-31 0000105016 us-gaap:CommonStockMember us-gaap:EmployeeStockOptionMember 2019-01-01 2019-03-31 0000105016 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0000105016 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-03-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2019-01-01 2019-03-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0000105016 wso:CommercialRefrigerationProductsMember 2019-01-01 2019-03-31 0000105016 wso:HvacEquipmentMember 2019-01-01 2019-03-31 0000105016 wso:OtherHvacProductsMember 2019-01-01 2019-03-31 0000105016 country:CA 2019-01-01 2019-03-31 0000105016 wso:LatinAmericaAndCaribbeanMember 2019-01-01 2019-03-31 0000105016 country:US 2019-01-01 2019-03-31 0000105016 wso:CommonAndClassBCommonStockMember us-gaap:RestrictedStockMember 2019-01-01 2019-03-31 0000105016 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2019-01-01 2019-03-31 0000105016 us-gaap:CommonStockMember wso:EmployeeStockPurchasePlanMember 2019-01-01 2019-03-31 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember 2019-01-01 2019-03-31 0000105016 us-gaap:ForeignExchangeForwardMember us-gaap:CashFlowHedgingMember 2020-03-31 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember 2020-03-31 0000105016 wso:CarrierAndItsAffiliatesMember us-gaap:SupplierConcentrationRiskMember 2020-03-31 0000105016 us-gaap:CommonStockMember 2020-03-31 0000105016 us-gaap:CommonClassBMember 2020-03-31 0000105016 us-gaap:DesignatedAsHedgingInstrumentMember wso:ForeignExchangeForwardAndOptionContractsMember 2020-03-31 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember 2020-03-31 0000105016 wso:AccruedExpensesAndOtherCurrentLiabilitiesMember 2020-03-31 0000105016 wso:AccruedExpensesAndOtherCurrentLiabilitiesMember us-gaap:FairValueInputsLevel2Member 2020-03-31 0000105016 us-gaap:OtherCurrentAssetsMember 2020-03-31 0000105016 us-gaap:OtherCurrentAssetsMember us-gaap:FairValueInputsLevel2Member 2020-03-31 0000105016 us-gaap:OtherAssetsMember 2020-03-31 0000105016 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member 2020-03-31 0000105016 us-gaap:CommonStockMember 2020-05-04 0000105016 us-gaap:CommonClassBMember 2020-05-04 0000105016 wso:CarrierAndItsAffiliatesMember us-gaap:SupplierConcentrationRiskMember 2019-12-31 0000105016 us-gaap:CommonStockMember 2019-12-31 0000105016 us-gaap:CommonClassBMember 2019-12-31 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember 2019-12-31 0000105016 us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember wso:ForeignExchangeForwardAndOptionContractsMember 2019-12-31 0000105016 us-gaap:DesignatedAsHedgingInstrumentMember wso:ForeignExchangeForwardAndOptionContractsMember 2019-12-31 0000105016 wso:AccruedExpensesAndOtherCurrentLiabilitiesMember 2019-12-31 0000105016 wso:AccruedExpensesAndOtherCurrentLiabilitiesMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0000105016 us-gaap:OtherAssetsMember 2019-12-31 0000105016 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member 2019-12-31 0000105016 us-gaap:RevolvingCreditFacilityMember 2018-12-05 0000105016 us-gaap:RevolvingCreditFacilityMember us-gaap:SubsequentEventMember 2020-04-10 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2019-12-31 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-12-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2019-12-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0000105016 us-gaap:RetainedEarningsMember 2019-12-31 0000105016 us-gaap:TreasuryStockMember 2019-12-31 0000105016 us-gaap:NoncontrollingInterestMember 2019-12-31 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2020-03-31 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2020-03-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2020-03-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0000105016 us-gaap:RetainedEarningsMember 2020-03-31 0000105016 us-gaap:TreasuryStockMember 2020-03-31 0000105016 us-gaap:NoncontrollingInterestMember 2020-03-31 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-12-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2018-12-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000105016 us-gaap:RetainedEarningsMember 2018-12-31 0000105016 us-gaap:TreasuryStockMember 2018-12-31 0000105016 us-gaap:NoncontrollingInterestMember 2018-12-31 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-03-31 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2019-03-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2019-03-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0000105016 us-gaap:RetainedEarningsMember 2019-03-31 0000105016 us-gaap:TreasuryStockMember 2019-03-31 0000105016 us-gaap:NoncontrollingInterestMember 2019-03-31 iso4217:USD xbrli:shares xbrli:pure iso4217:USD xbrli:shares
Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Quarterly Period Ended March 31, 2020
or
Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Transition Period From
                    
to
                    
Commission file number
1-5581
I.R.S. Employer Identification Number
59-0778222
 
WATSCO, INC.
(a Florida Corporation)
 
 
 
 
 
2665 South Bayshore Drive, Suite 901
Miami, Florida 33133
Telephone: (305)
 714-4100
 
Securities registered pursuant to Section 12(b) of the Act:
         
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
 
   Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or
 an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
             
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
 filer
 
 
Smaller reporting company
 
             
 
 
Emerging growth company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes 
    No 
The registrant’s common stock outstanding as of May 4, 2020 comprised (i) 32,758,823 shares of Common stock, $0.50 par value per share, excluding 4,823,988 treasury shares and (ii) 5,599,436 shares of Class B common stock, $0.50 par value per share, excluding 48,263 treasury shares. 
 
 

Table of Contents
WATSCO, INC. AND SUBSIDIARIES
 
QUARTERLY REPORT ON FORM
10-Q
TABLE OF CONTENTS
             
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
 
 
 
 
 
 
 
4
 
 
 
 
 
 
 
 
 
 
 
5
 
 
 
 
 
 
 
 
 
 
 
6
 
 
 
 
 
 
 
 
 
 
 
8
 
 
 
 
 
 
 
 
 
 
 
9
 
 
 
 
 
 
 
 
Item 2.
 
 
 
15
 
 
 
 
 
 
 
 
Item 3.
 
 
 
21
 
 
 
 
 
 
 
 
Item 4.
 
 
 
21
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
22
 
 
 
 
 
 
 
 
Item 1A.
 
 
 
22
 
 
 
 
 
 
 
 
Item 2.
 
 
 
22
 
 
 
 
 
 
 
 
Item 6.
 
 
 
23
 
 
 
 
 
 
 
 
24
 
 
 
 
 
 
EXHIBITS
 
 
 
 
2 of 24

Table of Contents
PART I.
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF INCOME
(In thousands, except per share data)
 
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
 
                 
See accompanying notes to condensed consolidated unaudited financial statements.
3
of
2
4

Table of Contents
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
                 
 
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
 
                 
 
 
See accompanying notes to condensed consolidated unaudited financial statements.
4
of
2
4

Table of Contents
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
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
 
                 
See accompanying notes to condensed consolidated unaudited financial statements.
5
of
24

Table of Contents
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF 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, 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
 
                                                                 
 
 
 
 
 
Continued on next page.
6
of
24

Table of Contents
                                                                 
(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
 
                                                                 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
7
of
24

Table of Contents
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(In thousands)
 
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
 
                 
See accompanying notes to condensed consolidated unaudited financial statements.
8
of
24

Table of Contents
WATSCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
March 31, 2020
(In thousands, except share and per share data)
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 March 31, 2020 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 2019 Annual Report on Form
10-K.
The condensed consolidated unaudited financial statements contained in this report include the accounts of Watsco, all of its wholly owned subsidiaries and the accounts of three joint ventures with Carrier Global Corporation (“Carrier”), in each of which Watsco maintains a controlling interest. All significant intercompany balances and transactions have been eliminated in consolidation.
The results of operations for the quarter ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020. 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 fourth quarter. 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.
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, valuation reserve
s
for 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.
Impact of
COVID-19
Pandemic
A novel strain of coronavirus,
COVID-19,
surfaced in December 2019 and has spread around the world, including to the United States In March 2020, the World Health Organization declared
COVID-19
a pandemic. The
COVID-19
pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely adversely affect our business and results of operations. Although these disruptions are expected to be temporary, significant uncertainty exists concerning the magnitude of the impact and duration of the
COVID-19
pandemic. As we cannot predict the duration or scope of the
COVID-19
pandemic, the anticipated negative financial impact to our results of operations cannot be reasonably estimated but could be material and last for an extended period of time.
Recently Adopted Accounting Standards
Financial Instruments—Credit Losses
In June 2016, the
Financial Accounting Standards Board (“FASB”) issued guidance that modifies the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, contract assets, long-term receivables and
off-balance
sheet credit exposures. Under the new standard, an entity will be required to consider a broader range of information to estimate expected credit losses, including historical information, current conditions and a reasonable forecast period, which may result in earlier recognition of certain losses. This guidance is effective for interim and annual periods beginning after December 15, 2019 using a modified retrospective approach. The adoption of this guidance did not have a material impact on our consolidated financial statements.
 
9
of
24

Table of Contents
Intangibles—Goodwill and Other
In January 2017, the FASB issued guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under this updated standard, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity also should consider income tax effects from any
tax-deductible
goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if any. This guidance is effective prospectively and is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted. The adoption of this guidance did not have a material impact on our consolidated financial statements.
 
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:
                 
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
%
                 
 
 
 
 
 
10 of 24

Table of Contents
 
 
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:
                 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 March 31, 2020 and 2019, our outstanding Class B common stock was convertible into 2,575,740 and 2,577,875 shares of our Common stock, respectively.
 
4.
OTHER COMPREHENSIVE (LOSS) INCOME
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income consists of the foreign currency translation adjustment associated with our Canadian operations’ use of the Canadian dollar as their functional currency and changes in the unrealized gains (losses) on cash flow hedging instruments. The tax effects allocated to each component of other comprehensive (loss) income were as follows:
                 
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
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11 of 24

Table of Contents
The changes in each component of accumulated other comprehensive loss, net of tax, were as follows:
                 
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
)
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
.
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.
Cash Flow Hedging Instruments
We enter into foreign currency forward contracts that are designated as cash flow hedges. The settlement of these derivatives results in reclassifications from accumulated other comprehensive loss to earnings for the period in which the settlement of these instruments occurs. The maximum period for which we hedge our cash flow using these instruments is 12 months. Accordingly, at March 31, 2020, all
of
our open foreign currency forward contracts had maturities of one year or less. The total notional value of our foreign currency exchange contracts designated as cash flow hedges at March 31, 2020 was $48,200, and such contracts have varying terms expiring through December 2020.
The impact from foreign exchange derivative instruments designated as cash flow hedges was as follows:
                 
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
)
 
 
 
 
 
At March 31, 2020, we expected an estimated $2,597
pre-tax
gain to be reclassified into earnings to reflect the fixed prices obtained from foreign exchange hedging within the next 12 months.
Derivatives Not Designated as Hedging Instruments
We have also 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 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 March 31,
2020
was $4,900,
and such contracts subsequently expired during April 2020.
We recognized a gain (loss)
of $829 and $
(
113
)
from foreign currency forward and option contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the quarters ended March 31,
2020
and
2019
, respectively.
The following table summarizes the fair value of derivative instruments, which consist solely of foreign exchange contracts, included in other current assets and accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets.
See Note
6
.
12 of 24

Table of Contents
                                 
 
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
 
                                 
 
 
 
 
6
.
FAIR VALUE MEASUREMENTS
The following tables present our assets and liabilities carried at fair value that are measured on a recurring basis:
                                         
 
Balance Sheet Location
 
 
Total
 
 
Fair Value Measurements
at March 31, 2020 Using
 
Level 1