10-Q 1 d888515d10q.htm 10-Q 10-Q
Table of Contents
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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 September 30, 2024
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
 
 
 
WATSCO, INC.
(Exact name of registrant as specified in its charter)
 
 
 
FLORIDA
 
59-0778222
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
2665 South Bayshore Drive, Suite 901
Miami,
FL
 
33133
(Address of principal executive offices)
 
(Zip Code)
(305)
714-4100
(Registrant’s telephone number, including area code)
 
 
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 October 28, 2024 comprised (i)
 
34,829,623 shares of Common stock, $0.50 par value per share, excluding
4,066,981
treasury shares and (ii) 5,552,050 shares of Class B common stock, $0.50 par value per share, excluding 34,87
2
treasury shares.
 
 
 


Table of Contents

WATSCO, INC. AND SUBSIDIARIES

 

 

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

     Page No.  

PART I. FINANCIAL INFORMATION

  

Item 1.

  

Condensed Consolidated Unaudited Financial Statements

  
   Condensed Consolidated Unaudited Statements of Income – Quarters and Nine Months Ended September 30, 2024 and 2023      3  
   Condensed Consolidated Unaudited Statements of Comprehensive Income – Quarters and Nine Months Ended September 30, 2024 and 2023      4  
   Condensed Consolidated Unaudited Balance Sheets – September 30, 2024 and December 31, 2023      5  
   Condensed Consolidated Unaudited Statements of Shareholders’ Equity – Quarters and Nine Months Ended September 30, 2024 and 2023      6  
   Condensed Consolidated Unaudited Statements of Cash Flows – Nine Months Ended September 30, 2024 and 2023      8  
   Notes to Condensed Consolidated Unaudited Financial Statements      9  

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      16  

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     25  

Item 4.

  

Controls and Procedures

     25  

PART II. OTHER INFORMATION

  

Item 1.

  

Legal Proceedings

     26  

Item 1A.

  

Risk Factors

     26  

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     26  

Item 5.

  

Other Information

     26  

Item 6.

  

Exhibits

     27  

SIGNATURE

     28  

EXHIBITS

  

 

2 of 28


Table of Contents
0.05
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)
 
 
  
Quarter Ended
September 30,
 
  
Nine Months Ended
September 30,
 
 
  
2024
 
 
2023
 
  
2024
 
 
2023
 
Revenues
  
$
2,160,036
 
   $ 2,126,845     
$
5,864,355
 
   $ 5,680,570  
Cost of sales
  
 
1,593,792
 
     1,559,900     
 
4,287,726
 
     4,102,846  
  
 
 
    
 
 
    
 
 
    
 
 
 
Gross profit
  
 
566,244
 
     566,945     
 
1,576,629
 
     1,577,724  
Selling, general and administrative expenses
  
 
326,373
 
     319,834     
 
954,950
 
     911,046  
Other income
  
 
10,376
 
     9,506     
 
23,908
 
     20,384  
  
 
 
    
 
 
    
 
 
    
 
 
 
Operating income
  
 
250,247
 
     256,617     
 
645,587
 
     687,062  
Interest (income) expense, net
  
 
(6,773
)
 
     1,890     
 
(14,156
)
 
     5,920  
  
 
 
    
 
 
    
 
 
    
 
 
 
Income before income taxes
  
 
257,020
 
     254,727     
 
659,743
 
     681,142  
Income taxes
  
 
55,373
 
     54,103     
 
139,183
 
     144,744  
  
 
 
    
 
 
    
 
 
    
 
 
 
Net income
  
 
201,647
 
     200,624     
 
520,560
 
     536,398  
Less: net income attributable to
non-controlling
interest
  
 
30,616
 
     29,671     
 
81,115
 
     82,608  
  
 
 
    
 
 
    
 
 
    
 
 
 
Net income attributable to Watsco, Inc.
  
$
171,031
 
   $ 170,953     
$
439,445
 
   $ 453,790  
  
 
 
    
 
 
    
 
 
    
 
 
 
Earnings per share for Common and Class B common stock:
           
Basic
  
$
4.24
 
   $ 4.36     
$
10.95
 
  
$
11.64
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Diluted
  
$
4.22
 
   $ 4.35     
$
10.92
 
  
$
11.60
 
  
 
 
    
 
 
    
 
 
    
 
 
 
See accompanying notes to condensed consolidated unaudited financial statements.
 
3 of 2
8

WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
 
  
Quarter Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
  
2024
 
  
2023
 
 
2024
 
 
2023
 
Net income
  
$
201,647
 
  $ 200,624    
$
520,560
 
   $ 536,398  
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
  
 
4,809
 
    (6,966  
 
(6,527
)
     409  
  
 
 
   
 
 
   
 
 
    
 
 
 
Other comprehensive income (loss)
  
 
4,809
 
    (6,966  
 
(6,527
)
 
     409  
  
 
 
   
 
 
   
 
 
    
 
 
 
Comprehensive income
  
 
206,456
 
    193,658    
 
514,033
 
     536,807  
Less: comprehensive income attributable to
non-controlling
interest
  
 
32,143
 
    27,350    
 
79,145
 
     82,712  
  
 
 
   
 
 
   
 
 
    
 
 
 
Comprehensive income attributable to Watsco, Inc.
  
$
174,313
 
  $ 166,308    
$
434,888
 
   $ 454,095  
  
 
 
   
 
 
   
 
 
    
 
 
 
See accompanying notes to condensed consolidated unaudited financial statements.
 
4 of 2
8

WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
(In thousands, except per share data)
 
 
  
September 30,
2024
 
 
December 31,
2023
 
ASSETS
    
Current assets:
    
Cash and cash equivalents
  
$
294,354
 
  $ 210,112  
Short-term cash investments
  
 
255,669
 
     
Accounts receivable, net
  
 
944,501
 
    797,832  
Inventories, net
  
 
1,596,795
 
    1,347,289  
Other current assets
  
 
41,673
 
    36,698  
  
 
 
   
 
 
 
Total current assets
  
 
3,132,992
 
    2,391,931  
Property and equipment, net
  
 
140,317
 
    136,230  
Operating lease
right-of-use
assets
  
 
401,000
 
    368,748  
Goodwill
  
 
458,829
 
    457,148  
Intangible assets, net
  
 
211,757
 
    218,146  
Investment in unconsolidated entity
  
 
162,018
 
    146,238  
Other assets
  
 
10,563
 
    10,741  
  
 
 
   
 
 
 
  
$
4,517,476
 
  $ 3,729,182  
  
 
 
   
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
    
Current liabilities:
    
Current portion of lease liabilities
  
$
107,369
 
  $ 100,265  
Accounts payable
  
 
549,443
 
    369,396  
Accrued expenses and other current liabilities
  
 
276,337
 
    242,351  
  
 
 
   
 
 
 
Total current liabilities
  
 
933,149
 
    712,012  
  
 
 
   
 
 
 
Long-term obligations:
    
Borrowings under revolving credit agreement
  
 
 
    15,400  
Operating lease liabilities, net of current portion
  
 
305,412
 
    276,913  
Finance lease liabilities, net of current portion
  
 
15,580
 
    12,214  
  
 
 
   
 
 
 
Total long-term obligations
  
 
320,992
 
    304,527  
  
 
 
   
 
 
 
Deferred income taxes and other liabilities
  
 
101,464
 
    96,453  
  
 
 
   
 
 
 
Commitments and contingencies
    
Watsco, Inc. shareholders’ equity:
    
Common stock, $0.50 par value
  
 
19,447
 
    19,353  
Class B common stock, $0.50 par value
  
 
2,795
 
    2,781  
Preferred stock, $0.50 par value
  
 
 
     
Paid-in
capital
  
 
1,486,504
 
    1,153,459  
Accumulated other comprehensive loss, net of tax
  
 
(46,888
)
    (42,331
Retained earnings
  
 
1,308,166
 
    1,183,207  
Treasury stock, at cost
  
 
(73,649
)
 
    (86,630
  
 
 
   
 
 
 
Total Watsco, Inc. shareholders’ equity
  
 
2,696,375
 
    2,229,839  
Non-controlling
interest
  
 
465,496
 
    386,351  
  
 
 
   
 
 
 
Total shareholders’ equity
  
 
3,161,871
 
    2,616,190  
  
 
 
   
 
 
 
  
$
4,517,476
 
  $ 3,729,182  
  
 
 
   
 
 
 
See accompanying notes to condensed consolidated unaudited financial statements.
 
5 of 2
8
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,

2023
  
 
39,441,280
 
 
$
22,134
 
 
$
1,153,459
 
 
$
(42,331
 
$
1,183,207
 
 
$
(86,630
 
$
386,351
 
 
$
2,616,190
 
Net income
  
 
 
 
 
 
87,004
 
 
 
 
17,258
 
 
 
104,262
 
Other comprehensive (loss)
  
 
 
 
 
(5,539
 
 
 
 
(2,461
 
 
(8,000
Issuances of restricted

shares of common stock
  
 
87,660
 
 
 
44
 
 
 
(44
 
 
 
 
 
 
— 
 
Forfeitures of restricted

shares of common stock
  
 
(12,064
 
 
(6
 
 
6
 
 
 
 
 
 
 
— 
 
Common stock
 
contribution

to 401(k)
 
plan
  
 
20,387
 
 
 
10
 
 
 
8,725
 
 
 
 
 
 
 
8,735
 
Stock issuances from

exercise of stock options

and employee stock

purchase plan
  
 
53,029
 
 
 
27
 
 
 
10,719
 
 
 
 
 
 
 
10,746
 
Retirement of common

stock
  
 
(1,425
 
 
(1
 
 
(564
 
 
 
 
 
 
(565
Net proceeds from the sale

of Common stock
  
 
712,000
 
 
 
 
268,931
 
 
 
 
 
12,820
 
 
 
 
281,751
 
Common stock issued for

Commercial Specialists,

Inc.
  
 
1,904
 
 
 
1
 
 
751
 
 
 
 
 
 
 
752
 
Share-based compensation
  
 
 
 
10,467
 
 
 
 
 
 
 
10,467
 
Cash dividends declared
 
and

paid on Common
 
and

Class B common stock,

$
2.45
per share
  
 
 
 
 
 
(96,765
 
 
 
 
(96,765
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2024
  
 
40,302,771
 
 
 
22,209
 
 
 
1,452,450
 
 
 
(47,870
 
 
1,173,446
 
 
 
(73,810
 
 
401,148
 
 
 
2,927,573
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
  
 
 
 
 
 
181,410
 
 
 
 
33,241
 
 
 
214,651
 
Other comprehensive (loss)
  
 
 
 
 
(2,300
 
 
 
 
(1,036
 
 
(3,336
Issuances of restricted

shares of common stock
  
 
10,000
 
 
 
5
 
 
 
(5
 
 
 
 
 
 
— 
 
Forfeitures of restricted

shares of common stock
  
 
(5,750
 
 
(3
 
 
3
 
 
 
 
 
 
 
— 
 
Stock issuances from

exercise of stock options

and employee stock

purchase plan
  
 
36,754
 
 
 
18
 
 
 
8,140
 
 
 
 
 
 
 
8,158
 
Retirement of common

stock
  
 
(5,279
 
 
(2
 
 
(2,442
 
 
 
 
 
 
(2,444
Share-based compensation
  
 
 
 
8,390
 
 
 
 
 
 
 
8,390
 
Dividend reinvestment plan
  
 
4
 
 
 
 
 
 
 
1
 
 
 
 
 
— 
 
 
 
 
1
 
Cash dividends declared and

paid on Common and

Class B common stock,

$
2.70
per share
  
 
 
 
 
 
(108,803
 
 
 
 
(108,803
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2024
  
 
40,338,500
 
 
 
22,227
 
 
 
1,466,537
 
 
 
(50,170
 
 
1,246,053
 
 
 
(73,810
 
 
433,353
 
 
 
3,044,190
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
  
 
 
 
 
 
171,031
 
 
 
 
30,616
 
 
 
201,647
 
Other comprehensive

income
  
 
 
 
 
3,282
 
 
 
 
 
1,527
 
 
 
4,809
 
Issuances of restricted

shares of common stock
  
 
8,500
 
 
 
4
 
 
 
(4
)
 
 
 
 
 
 
— 
 
Stock issuances from

exercise of stock options

and employee stock

purchase plan
  
 
24,826
 
 
 
12
 
 
 
6,669
 
 
 
 
 
 
 
6,681
 
Retirement of common

stock
  
 
(3,454
)
 
 
(1
)
 
 
(1,637
)
 
 
 
 
 
 
(1,638
)
Share-based compensation
 
 
 
 
 
 
 
 
 
 
8,546
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,546
 
Dividend reinvestment plan
  
 
13,394
 
 
 
 
 
 
 
6,393
 
 
 
 
161
 
 
 
6,554
 
Cash dividends declared and

paid on Common and

Class B common stock,

$
2.70
per share
  
 
 
 
 
 
(108,918
)
 
 
 
 
(108,918
)
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2024
  
 
40,381,766
 
 
$
22,242
 
 
$
1,486,504
 
 
$
(46,888
)
 
$
1,308,166
 
 
$
(73,649
)
 
$
465,496
 
 
$
3,161,871
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Continued on next page.
 
6
 
of 2
8

(In thousands,
except share and per
share data)
 
Common Stock,
Class B

Common Stock
and Preferred
Stock Shares
 
 
Common Stock,
Class B
Common Stock
and Preferred
Stock Amount
 
 
Paid-In

Capital
 
 
Accumulated

Other

Comprehensive

Loss
 
 
Retained

Earnings
 
 
Treasury

Stock
 
 
Non-controlling

Interest
 
 
Total
 
Balance at December 31,

2022
  
 
38,749,887
 
 
$
21,811
 
 
$
973,060
 
 
$
(47,710
 
$
1,029,516
 
 
$
(87,440
 
$
359,041
 
 
$
2,248,278
 
Net income
  
 
 
 
 
 
110,073
 
 
 
 
20,298
 
 
 
130,371
 
Other comprehensive

income
  
 
 
 
 
170
 
 
 
 
 
90
 
 
 
260
 
Issuances of restricted

shares of common stock
  
 
116,510
 
 
 
58
 
 
 
(58
 
 
 
 
 
 
— 
 
Forfeitures of restricted
shares of common stock
  
 
(2,000
 
 
(1
 
 
1
 
 
 
 
 
 
 
— 
 
Common stock
 
contribution
to 401(k)
 
plan
  
 
35,533
 
 
 
18
 
 
 
8,844
 
 
 
 
 
 
 
8,862
 
Stock issuances from

exercise of stock options

and employee stock

purchase plan
  
 
75,186
 
 
 
38
 
 
 
12,947
 
 
 
 
 
 
 
12,985
 
Issuance of Class B

common stock
  
 
632
 
 
 
— 
 
 
 
200
 
 
 
 
 
 
 
200
 
Retirement of common

stock
  
 
(21,702
 
 
(11
 
 
(6,441
 
 
 
 
 
 
(6,452
Share-based compensation
  
 
 
 
8,763
 
 
 
 
 
 
 
8,763
 
Cash dividends declared
 
and

paid on
 
Common
 
and

Class B common
 
stock,

$
2.45
per share
  
 
 
 
 
 
(94,970
 
 
 
 
(94,970
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31,
 
2023
  
 
38,954,046
 
 
 
21,913
 
 
 
997,316
 
 
 
(47,540
 
 
1,044,619
 
 
 
(87,440
 
 
379,429
 
 
 
2,308,297
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
  
 
 
 
 
 
172,764
 
 
 
 
32,639
 
 
 
205,403
 
Other comprehensive

income
  
 
 
 
 
4,780
 
 
 
 
 
2,335
 
 
 
7,115
 
Issuances of restricted

shares of common stock
  
 
38,000
 
 
 
19
 
 
 
(19
 
 
 
 
 
 
 
Forfeitures of restricted

shares of common stock
  
 
(467
 
 
— 
 
 
 
— 
 
 
 
 
 
 
 
— 
 
Stock issuances from

exercise of stock options

and employee stock

purchase plan
  
 
30,794
 
 
 
15
 
 
 
5,622
 
 
 
 
 
 
 
5,637
 
Retirement of common

stock
  
 
(1,737
 
 
(1
 
 
(594
 
 
 
 
 
 
(595
Share-based compensation
  
 
 
 
6,828
 
 
 
 
 
 
 
6,828
 
Net proceeds from the sale

of Common stock
  
 
45,000
 
 
 
 
13,994
 
 
 
 
 
810
 
 
 
 
14,804
 
Cash dividends declared
 
and

paid on
 
Common
 
and

Class B common
 
stock,

$
2.45
per share
  
 
 
 
 
 
(95,439
 
 
 
 
(95,439
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30,
 
2023
  
 
39,065,636
 
 
 
21,946
 
 
 
1,023,147
 
 
 
(42,760
 
 
1,121,944
 
 
 
(86,630
 
 
414,403
 
 
 
2,452,050
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
  
 
 
 
 
 
170,953
 
 
 
 
29,671
 
 
 
200,624
 
Other comprehensive (loss)
  
 
 
 
 
(4,645
 
 
 
 
(2,321
 
 
(6,966
Issuances of restricted

shares of common stock
  
 
13,607
 
 
 
7
 
 
 
(7
 
 
 
 
 
 
— 
 
Forfeitures of restricted

shares of common stock
  
 
(1,000
 
 
(1
 
 
1
 
 
 
 
 
 
 
— 
 
Stock issuances from

exercise of stock options

and employee stock

purchase plan
  
 
37,399
 
 
 
19
 
 
 
6,610
 
 
 
 
 
 
 
6,629
 
Retirement of common

stock
  
 
(1,328
 
 
 
 
 
(467
 
 
 
 
 
 
(467
Share-based compensation
  
 
 
 
7,262
 
 
 
 
 
 
 
7,262
 
Common stock issued for

Gateway Supply

Company, Inc.
  
 
280,215
 
 
 
140
 
 
 
102,203
 
 
 
 
 
 
 
102,343
 
Cash dividends declared
 
and

paid on
 
Common
 
and

Class B common
 
stock,

$
2.45
per share
  
 
 
 
 
 
(95,713
 
 
 
 
(95,713
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 202
3
  
 
39,394,529
 
 
$
22,111
 
 
$
1,138,749
 
 
$
(47,405
 
$
1,197,184
 
 
$
(86,630
 
$
441,753
 
 
$
2,665,762
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to condensed consolidated unaudited financial statements.
 
7 of 2
8
WATSCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
  
Nine Months Ended
September 30,
 
 
  
2024
 
 
2023
 
Cash flows from operating activities:
    
Net income
  
$
520,560
 
  $ 536,398  
Adjustments to reconcile net income to net cash provided by operating activities:
    
Depreciation and amortization
  
 
30,331
 
    25,406  
Share-based compensation
  
 
25,063
 
    20,791  
Non-cash
 
contribution to 401(k) plan
  
 
8,735
 
    8,862  
Deferred income tax provision
  
 
5,978
 
    5,892  
Provision for doubtful accounts
  
 
608
 
    3,185  
Loss (gain) on sale of property and equipment
  
 
575
    (344 )
Other income from investment in unconsolidated entity
  
 
(23,908
)
    (20,384 )
Changes in operating assets and liabilities, net of effects of acquisitions:
    
Accounts receivable, net
  
 
(145,071
)
    (184,106 )
Inventories, net
  
 
(248,202
)
    (143,746 )
Accounts payable and other liabilities
  
 
218,882
 
    17,608  
Other, net
  
 
654
    (6,222 )
    
 
 
   
 
 
 
Net cash provided by operating activities
  
 
394,205
 
    263,340  
    
 
 
   
 
 
 
Cash flows from investing activities:
   
Purchases of short-term cash investments
  
 
(255,669
)
     
Capital expenditures
  
 
(22,058
)
    (25,500 )
Business acquisitions, net of cash acquired
  
 
(5,173
)
    (3,827 )
Proceeds from sale of property and equipment
  
 
181
 
    1,277  
    
 
 
   
 
 
 
Net cash used in investing activities
  
 
(282,719
)
    (28,050 )
    
 
 
   
 
 
 
Cash flows from financing activities:
    
Dividends on Common and Class B common stock
  
 
(314,486
)
    (286,122 )
Net (repayments) proceeds under current revolving credit agreement
  
 
(15,400
)
    105,600  
Net repayments of finance lease liabilities
  
 
(4,449
)
 
    (2,794 )
 
Repurchases of common stock to satisfy employee withholding tax obligations
  
 
(2,847
)
    (2,639 )
Net repayments under prior revolving credit agreement
  
 
 
    (56,400 )
Payment of fees related to revolving credit agreement
  
 
 
    (837 )
Net proceeds from Dividend Reinvestment Plan
  
 
6,555
 
     
Net proceeds from issuances of Common stock under employee-related plans
  
 
23,782
 
    20,373  
Net proceeds from the sale of Common stock
  
 
281,784
 
    15,179  
    
 
 
   
 
 
 
Net cash used in financing activities
  
 
(25,061
)
    (207,640 )
    
 
 
   
 
 
 
Effect of foreign exchange rate changes on cash and cash equivalents
  
 
(2,183
)
    (133 )
    
 
 
   
 
 
 
Net increase in cash and cash equivalents
  
 
84,242
 
    27,517  
Cash and cash equivalents at beginning of period
  
 
210,112
 
    147,505  
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
  
$
294,354
 
  $ 175,022  
    
 
 
   
 
 
 
Supplemental cash flow information:
    
Common stock issued for Gateway Supply Company, Inc.
         $ 101,645  
Common stock issued for Commercial Specialists, Inc.
  
$
752
       
See accompanying notes to condensed consolidated unaudited financial statements.
 
8 of 2
8

WATSCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
September 30, 2024
(In thousands, except share and per share data)
 
1.
BASIS OF PRESENTATION
Basis of Consolidation
Watsco, Inc. (collectively with its subsidiaries, “Watsco,” the “Company,” “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 September 30, 2024 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 2023 Annual Report on Form
10-K.
The condensed consolidated unaudited financial statements include the accounts of Watsco, all of its wholly owned subsidiaries, the accounts of four joint ventures with Carrier Global Corporation, which we refer to as Carrier, in which we have a controlling interest, the accounts of Carrier InterAmerica Corporation and Carrier (Puerto Rico), Inc., in each of which we have an 80% controlling interest, and Carrier has a 20%
non-controlling
interest, and our 38.4% investment in Russell Sigler, Inc., which is accounted for under the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.
The results of operations for the quarter and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024. Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal. Furthermore, profitability can be impacted favorably or unfavorably based on weather patterns, particularly during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is usually highest in the first and fourth quarters. Demand related to the new construction sectors throughout most of the markets we serve tends to be fairly evenly distributed throughout the year and depends largely on housing completions and related weather and economic conditions.
Short-Term Cash Investments
Short-term cash investments consist of certificates of deposit that have varying maturities through March 2025.
Equity Method Investments
Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in investment in unconsolidated entity in our condensed consolidated unaudited balance sheets. Under this method of accounting, our proportionate share of the net income or loss of the investee is included in other income in our condensed consolidated unaudited statements of income. The excess, if any, of the carrying amount of our investment over our ownership percentage in the underlying net assets of the investee is attributed to certain fair value adjustments with the remaining portion recognized as goodwill.
Use of Estimates
The preparation of condensed consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amounts of revenues and expenses for the reporting period. Significant estimates include valuation reserves for accounts receivable, net realizable value adjustments to inventories, income taxes, reserves related to loss contingencies and the valuation of goodwill, indefinite-lived intangible assets, and long-lived assets. While we believe that these estimates are reasonable, actual results could differ from such estimates.
Recently Adopted Accounting Standards
Segment Reporting
In September 2023, the Financial Accounting Standards Board (“FASB”) issued guidance that enhances segment reporting primarily by expanding the disclosures about significant segment expenses. Under the new standard, an entity will be required to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), how the CODM assesses
 
9 of 2
8

segment performance and decides how to allocate resources, the title and position of the CODM, and certain other disclosures. This guidance is effective prospectively and is effective for annual periods beginning after December 15, 2023 and for interim periods beginning after December 15, 2024. The adoption of this guidance on January 1, 2024 did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
Income Taxes
In December 2023, the FASB issued guidance that enhances annual income tax disclosures primarily by disaggregating the existing disclosures related to the effective tax rate reconciliation and income taxes paid. Under the new guidance, an entity will be required to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. An entity will also be required to disclose the amount of income taxes paid disaggregated by federal, state, and foreign, and by individual jurisdictions equal to or greater than
five percent
of total income taxes paid. This guidance is effective prospectively and is effective for annual periods beginning after December 15, 2024. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. 
Climate Disclosures
In March 2024, the Securities and Exchange Commission (“SEC”) adopted rules to enhance and standardize disclosures related to the impacts and risks of climate-related matters. Under the new rules, an entity will be required to disclose information about climate-related risks that have materially impacted, or are likely to have a material impact, on its business strategy, results of operations, or financial condition. In addition, certain disclosures related to severe weather events, other natural conditions, and greenhouse gas emissions will be required in the audited financial statements. These rules are effective prospectively and are effective for annual periods beginning with the year ending December 31, 2025. On April 4, 2024, the SEC announced that it will stay
t
he
implementation of its final rules pending the results of a legal challenge. We will continue to assess the impact of these rules on our consolidated financial statements while the stay is in place.
 
2.
REVENUES
Disaggregation of Revenues

The following table presents our revenues disaggregated by primary geographical regions and major product lines within our single reportable segment:
 
     Quarter Ended
September 30,
    Nine Months Ended
September 30,
 
     2024     2023     2024     2023  
Primary Geographical Regions:
        
United States
  
$
1,954,991
 
  $ 1,924,556    
$
5,280,176
 
  $ 5,118,591  
Canada
  
 
96,604
 
    100,030    
 
272,099
 
    288,653  
Latin America and the Caribbean
  
 
108,441
 
    102,259    
 
312,080
 
    273,326  
  
 
 
   
 
 
   
 
 
   
 
 
 
  
$
2,160,036
 
  $ 2,126,845    
$
5,864,355
 
  $ 5,680,570  
  
 
 
   
 
 
   
 
 
   
 
 
 
Major Product Lines:
        
HVAC equipment
  
 
70
    70  
 
69
    69
Other HVAC products
  
 
26
    26  
 
27
    27
Commercial refrigeration products
  
 
4
    4  
 
4
    4
  
 
 
   
 
 
   
 
 
   
 
 
 
  
 
100
    100  
 
100
    100
  
 
 
   
 
 
   
 
 
   
 
 
 
 
10 of 2
8

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:
     Quarter Ended
September 30,
     Nine Months Ended
September 30,
 
     2024      2023      2024      2023  
Basic Earnings per Share:
           
Net income attributable to Watsco, Inc. shareholders
  
$
171,031
 
   $ 170,953     
$
439,445
 
   $ 453,790  
Less: distributed and undistributed earnings allocated to restricted common stock
  
 
11,899
 
     11,921     
 
30,708
 
     31,248  
  
 
 
    
 
 
    
 
 
    
 
 
 
Earnings allocated to Watsco, Inc. shareholders
  
$
159,132
 
   $ 159,032     
$
408,737