View Filing Data

Cover Page - shares	3 Months Ended
Cover Page - shares	Mar. 31, 2020	May 04, 2020
Document Information [Line Items]
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Amendment Flag	false
Entity Registrant Name	WATSCO INC
Entity Central Index Key	0000105016
Entity File Number	1-5581
Entity Incorporation, State or Country Code	FL
Document Quarterly Report	true
Document Transition Report	false
Entity Tax Identification Number	59-0778222
Entity Address, Address Line One	2665 South Bayshore Drive
Entity Address, City or Town	Miami
Entity Address, Postal Zip Code	33133
Entity Address, Address Line Two	Suite 901
Entity Address, State or Province	FL
City Area Code	305
Local Phone Number	714-4100
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Common Stock [Member]
Document Information [Line Items]
Trading Symbol	WSO
Security Exchange Name	NYSE
Title of 12(b) Security	Common stock, $0.50 par value
Entity Common Stock, Shares Outstanding		32,758,823
Common Class B [Member]
Document Information [Line Items]
Trading Symbol	WSOB
Security Exchange Name	NYSE
Title of 12(b) Security	Class B common stock, $0.50 par value
Entity Common Stock, Shares Outstanding		5,599,436

Condensed Consolidated Unaudited Statements of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 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

Condensed Consolidated Unaudited Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 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

- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

+ References

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+ Details

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
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
Total assets	2,581,829	2,556,161
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:
Preferred stock, $0.50 par value	0	0
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
Total liabilities and shareholders' equity	2,581,829	2,556,161
Common Stock
Watsco, Inc. shareholders' equity:
Common stock, $0.50 par value	18,789	18,768
Class B Common Stock
Watsco, Inc. shareholders' equity:
Common stock, $0.50 par value	$ 2,821	$ 2,765

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2020	Dec. 31, 2019
Preferred stock, par value	$ 0.50	$ 0.50
Common Stock
Common stock, par value	0.50	0.50
Class B Common Stock
Common stock, par value	$ 0.50	$ 0.50

Condensed Consolidated Unaudited Statements of Shareholders' Equity - USD ($) $ in Thousands	Total	Common Stock, Class B Common Stock and Preferred Stock	Paid-In Capital	Accumulated Other Comprehensive Loss	Retained Earnings	Treasury Stock	Non-controlling Interest
Beginning balance at Dec. 31, 2018	$ 1,601,713	$ 21,167	$ 832,121	$ (45,968)	$ 627,969	$ (87,440)	$ 253,864
Beginning balance (in shares) at Dec. 31, 2018		37,461,643
Net income	43,804				35,037		8,767
Other comprehensive income (loss)	4,195			2,783			1,412
Issuances of non-vested restricted shares of common stock		$ 39	(39)
Issuances of non-vested restricted shares of common stock (in shares)		77,049
Forfeitures of non-vested restricted shares of common stock		$ (3)	3
Forfeitures of non-vested restricted shares of common stock (in shares)		(5,000)
Common stock contribution to 401(k) plan	4,274	$ 15	4,259
Common stock contribution to 401(k) plan (in shares)		30,715
Stock issuances from exercise of stock options and employee stock purchase plan	1,125	$ 4	1,121
Stock issuances from exercise of stock options and employee stock purchase plan (in shares)		8,925
Retirement of common stock	(428)	$ (1)	(427)
Retirement of common stock (in shares)		(2,985)
Share-based compensation	4,537		4,537
Cash dividends declared and paid on Common and Class B common stock	(59,965)				(59,965)
Ending balance at Mar. 31, 2019	1,599,255	$ 21,221	841,575	(43,185)	603,041	(87,440)	264,043
Ending balance (in shares) at Mar. 31, 2019		37,570,347
Beginning balance at Dec. 31, 2019	1,714,767	$ 21,533	907,877	(39,050)	632,507	(87,440)	279,340
Beginning balance (in shares) at Dec. 31, 2019		38,194,056
Net income	36,247				30,502		5,745
Other comprehensive income (loss)	(19,280)			(12,739)			(6,541)
Issuances of non-vested restricted shares of common stock		$ 57	(57)
Issuances of non-vested restricted shares of common stock (in shares)		113,765
Common stock contribution to 401(k) plan	4,543	$ 13	4,530
Common stock contribution to 401(k) plan (in shares)		25,216
Stock issuances from exercise of stock options and employee stock purchase plan	2,541	$ 9	2,532
Stock issuances from exercise of stock options and employee stock purchase plan (in shares)		18,674
Retirement of common stock	(791)	$ (2)	(789)
Retirement of common stock (in shares)		(4,828)
Share-based compensation	6,097		6,097
Cash dividends declared and paid on Common and Class B common stock	(61,238)				(61,238)
Ending balance at Mar. 31, 2020	$ 1,682,886	$ 21,610	$ 920,190	$ (51,789)	$ 601,771	$ (87,440)	$ 278,544
Ending balance (in shares) at Mar. 31, 2020		38,346,883

Condensed Consolidated Unaudited Statements of Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash dividends declared and paid, common stock	$ 1.60	$ 1.60

Condensed Consolidated Unaudited Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 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

BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2020

BASIS OF PRESENTATION

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

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.

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.

REVENUES

3 Months Ended

Mar. 31, 2020

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	%

EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2020

EARNINGS PER SHARE

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

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.

OTHER COMPREHENSIVE (LOSS) INCOME

3 Months Ended

Mar. 31, 2020

OTHER COMPREHENSIVE (LOSS) INCOME

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

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	)

DERIVATIVES

3 Months Ended

Mar. 31, 2020

DERIVATIVES

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

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


	Asset Derivatives				Liability Derivatives
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Derivatives designated as hedging instruments	$	2,604	$	—	$	56	$	944
Derivatives not designated as hedging instruments		122		—		4		63

Total derivative instruments	$	2,726	$	—	$	60	$	1,007

FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2020

FAIR VALUE MEASUREMENTS

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
	Balance Sheet Location		Total		Level 1		Level 2		Level 3
Assets:
Derivative financial instruments		Other current assets	$	2,726	$	—	$	2,726	$	—
Equity securities		Other assets	$	269	$	269	$	—	$	—
Liabilities:
Derivative financial instruments		Accrued expenses and other current liabilities	$	60	$	—	$	60	$	—


	Balance Sheet Location		Total		Fair Value Measurements at December 31, 2019 Using
	Balance Sheet Location		Total		Level 1		Level 2		Level 3
Assets:
Equity securities		Other assets	$	402	$	402	$	—	$	—
Liabilities:
Derivative financial instruments		Accrued expenses and other current liabilities	$	1,007	$	—	$	1,007	$	—

The following is a description of the valuation techniques used for these assets and liabilities, as well as the level of input used to measure fair value:

Equity securities

– these investments are exchange-traded equity securities. Fair values for these investments are based on closing stock prices from active markets and are therefore classified within Level 1 of the fair value hierarchy.

Derivative financial instruments

– these derivatives are foreign currency forward and option contracts. See Note

. Fair value is based on observable market inputs, such as forward rates in active markets; therefore, we classify these derivatives within Level 2 of the valuation hierarchy.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

SHAREHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2020

SHAREHOLDERS' EQUITY

7 .	SHAREHOLDERS’ EQUITY

Common Stock Dividends

We paid cash dividends of $1.60

per share of both Common stock and Class B common stock during both the quarters

ended March 31, 2020 and 2019.

Non-Vested

Restricted Stock

During the quarter ended March 31, 2020, 4,828 shares of Common and Class B common stock with an aggregate fair market value of $791 were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of restricted stock. These shares were retired upon delivery. During the quarter ended March 31, 2019, 2,985 shares of Common and Class B common stock with an aggregate fair market value of $428 were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of restricted stock. These shares were retired upon delivery.

Exercise of Stock Options

Cash received from the exercise of stock options during the quarters ended

March 31, 2020 and 2019 was $2,188 and $717, respectively.

Employee Stock Purchase Plan

During the quarters ended March 31, 2020 and 2019, we received net proceeds of $353 and $410,

respectively, for shares of our Common stock purchased under our employee stock purchase plan.

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2020

COMMITMENTS AND CONTINGENCIES

8 .	COMMITMENTS AND CONTINGENCIES

Litigation, Claims and Assessments

We are involved in litigation incidental to the operation of our business. We vigorously defend all matters in which we or our subsidiaries are named defendants and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect us. Although the adequacy of existing insurance coverage and the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, we do not believe the ultimate liability associated with any known claims or litigation will have a material adverse effect on our financial condition or results of operations.

Self-Insurance

Self-insurance reserves are maintained relative to company-wide casualty insurance and health benefit programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When estimating the self-insurance liabilities and related reserves, management considers a number of factors, which include historical claims experience, demographic factors, severity factors, and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party actuaries to evaluate whether the self-insurance reserves are adequate. If actual claims or adverse development of loss reserves occur and exceed these estimates, additional reserves may be required. Reserves in the amounts of $3,809 and $3,062 at March 31, 2020 and December 31, 2019, respectively, were established related to such programs and are included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets.

RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2020

RELATED PARTY TRANSACTIONS

9 .	RELATED PARTY TRANSACTIONS

Purchases from Carrier and its affiliates comprised 57% and 61% of all inventory purchases made during the quarters ended March 31, 2020 and 2019, respectively. At March 31, 2020 and December 31, 2019, approximately $125,000 and $86,000, respectively, was payable to Carrier and its affiliates, net of receivables. Our joint ventures with Carrier also sell HVAC products to Carrier and its affiliates. Revenues in our condensed consolidated unaudited statements of income for the quarters ended March 31, 2020 and 2019 included approximately $22,000 and $21,000, respectively, of sales to Carrier and its affiliates. We believe these transactions are conducted on terms equivalent to an

arm’s-length

basis in the ordinary course of business.

SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2020

SUBSEQUENT EVENTS

10.	SUBSEQUENT EVENTS

On April 3, 2020, United Technologies Corporation completed the

spin-off

of Carrier Corporation into an independent, publicly traded company, now named Carrier Global Corporation (NYSE: CARR).

On April 10, 2020, we increased the aggregate borrowing capacity of our unsecured syndicated multicurrency revolving credit agreement from $500,000 to $560,000.

BASIS OF PRESENTATION (Policies)	3 Months Ended
BASIS OF PRESENTATION (Policies)	Mar. 31, 2020
Basis of Consolidation	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	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	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	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. 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.

REVENUES (Tables)

3 Months Ended

Mar. 31, 2020

Summary of Disaggregated Revenue

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	%

EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2020

Schedule of Basic and Diluted Earnings Per Common 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

OTHER COMPREHENSIVE (LOSS) INCOME (Tables)

3 Months Ended

Mar. 31, 2020

Schedule of Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)

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

Schedule of Accumulated Other Comprehensive Loss

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	)

DERIVATIVES (Tables)

3 Months Ended

Mar. 31, 2020

Impact from Foreign Exchange Derivative Instruments Designated as Cash Flow Hedges

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	)

Fair Value of Derivative Instruments and Location in the Balance Sheets

See Note


	Asset Derivatives				Liability Derivatives
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Derivatives designated as hedging instruments	$	2,604	$	—	$	56	$	944
Derivatives not designated as hedging instruments		122		—		4		63

Total derivative instruments	$	2,726	$	—	$	60	$	1,007

FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2020

Assets and Liabilities Measured at Fair Value on Recurring Basis

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
	Balance Sheet Location		Total		Level 1		Level 2		Level 3
Assets:
Derivative financial instruments		Other current assets	$	2,726	$	—	$	2,726	$	—
Equity securities		Other assets	$	269	$	269	$	—	$	—
Liabilities:
Derivative financial instruments		Accrued expenses and other current liabilities	$	60	$	—	$	60	$	—


	Balance Sheet Location		Total		Fair Value Measurements at December 31, 2019 Using
	Balance Sheet Location		Total		Level 1		Level 2		Level 3
Assets:
Equity securities		Other assets	$	402	$	402	$	—	$	—
Liabilities:
Derivative financial instruments		Accrued expenses and other current liabilities	$	1,007	$	—	$	1,007	$	—

Summary of Disaggregated Revenue (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Disaggregation of Revenue [Line Items]
Revenues from product lines, percentage	100.00%	100.00%
Revenues	$ 1,008,156	$ 931,278
United States
Disaggregation of Revenue [Line Items]
Revenues	899,545	806,511
Canada
Disaggregation of Revenue [Line Items]
Revenues	55,341	59,256
Latin America and Caribbean
Disaggregation of Revenue [Line Items]
Revenues	$ 53,270	$ 65,511
HVAC Equipment
Disaggregation of Revenue [Line Items]
Revenues from product lines, percentage	66.00%	67.00%
Other HVAC Products
Disaggregation of Revenue [Line Items]
Revenues from product lines, percentage	30.00%	29.00%
Commercial Refrigeration Products
Disaggregation of Revenue [Line Items]
Revenues from product lines, percentage	4.00%	4.00%

Schedule of Basic and Diluted Earnings per Common Share (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
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 - Basic	$ 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
Net income attributable to Watsco, Inc. shareholders	$ 30,502	$ 35,037
Less: distributed and undistributed earnings allocated to non-vested restricted common stock - Diluted	5,233	4,924
Earnings allocated to Watsco, Inc. shareholders - Diluted	$ 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
Common Stock
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Earnings allocated to Watsco, Inc. shareholders - Basic	$ 23,409	$ 27,856
Class B Common Stock
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Earnings allocated to Watsco, Inc. shareholders - Basic	$ 1,860	$ 2,257

Earnings Per Share - Additional Information (Detail) - shares	Mar. 31, 2020	Mar. 31, 2019
Earnings Per Share [Line Items]
Class B common stock conversion, number of shares	2,575,740	2,577,875

Schedule of Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss) (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Components Of Other Comprehensive Income Loss [Line Items]
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

Schedule of Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ (39,050)
Ending balance	(51,789)	$ (43,185)
Foreign Currency Translation Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(38,599)	(46,604)
Current period other comprehensive income (loss)	(14,328)	3,269
Ending balance	(52,927)	(43,335)
Cash Flow Hedging Instruments
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(451)	636
Current period other comprehensive income (loss)	1,520	(322)
Reclassification adjustment	69	(164)
Ending balance	$ 1,138	$ 150

Impact from Foreign Exchange Derivative Instruments Designated as Cash Flow Hedges (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recorded in accumulated other comprehensive loss	$ 3,473	$ (735)
Foreign Currency Forward Contracts \| Cash Flow Hedge
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recorded in accumulated other comprehensive loss	3,473	(735)
Loss (gain) reclassified from accumulated other comprehensive loss into earnings	$ 157	$ (375)

Fair Value of Derivative Instruments and Location in the Balance Sheets (Detail) - Foreign Exchange Forward And Option Contracts [Member] - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Derivatives, Fair Value [Line Items]
Derivative instruments, assets derivatives	$ 2,726
Derivative instruments, liabilities derivatives	60	$ 1,007
Derivatives Designated as Hedging Instruments
Derivatives, Fair Value [Line Items]
Derivative instruments, assets derivatives	2,604
Derivative instruments, liabilities derivatives	56	944
Not Designated as Hedging Instrument, Economic Hedge [Member]
Derivatives, Fair Value [Line Items]
Derivative instruments, assets derivatives	122
Derivative instruments, liabilities derivatives	$ 4	$ 63

Derivatives - Additional Information (Detail) - USD ($)	3 Months Ended
Derivatives - Additional Information (Detail) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Foreign Currency Forward Contracts \| Cash Flow Hedge
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional value of derivatives	$ 48,200,000
Contract maturity period	one year or less
Contract expiring terms	2020-12
Maximum length of time hedged in cash flow hedge	12 months
Pre-tax gain to be reclassified into earnings within the next 12 months	$ 2,597,000
Foreign Exchange Forward And Option Contracts [Member] \| Not Designated as Hedging Instrument, Economic Hedge [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional value of derivatives	$ 4,900,000
Contract expiring terms	2020-04
(Loss) gain from foreign currency forward and option contracts not designated as hedging instruments	$ 829,000	$ (113,000)

Assets and Liabilities Carried at Fair Value Measured on Recurring Basis (Detail) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Other Current Assets
Assets:
Derivative financial instruments	$ 2,726
Other assets
Assets:
Equity securities	269	$ 402
Accrued expenses and other current liabilities
Liabilities:
Derivative financial instruments	60	1,007
Fair Value Measurements, Level 1 \| Other assets
Assets:
Equity securities	269	402
Fair Value Measurements, Level 2 \| Other Current Assets
Assets:
Derivative financial instruments	2,726
Fair Value Measurements, Level 2 \| Accrued expenses and other current liabilities
Liabilities:
Derivative financial instruments	$ 60	$ 1,007

Shareholders' Equity - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Stockholders Equity Note [Line Items]
Shares withheld as payment for tax withholdings related to share based compensation, market value	$ 791	$ 428
Common and Class B Common Stock \| Non-Vested Restricted Stock
Stockholders Equity Note [Line Items]
Shares withheld as payment for tax withholdings related to share based compensation, market value	$ 791	$ 428
Shares withheld as payment for tax withholdings related to share based compensation, shares	4,828	2,985
Common Stock \| Stock Option
Stockholders Equity Note [Line Items]
Net proceeds from the sale of Common stock	$ 2,188	$ 717
Common Stock \| Employee Stock Purchase Plan [Member]
Stockholders Equity Note [Line Items]
Net proceeds from shares purchased under ESPP	$ 353	$ 410
Common Stock \| Class B Common Stock
Stockholders Equity Note [Line Items]
Cash dividends paid per share of Common and Class B common stock	$ 1.60	$ 1.60

Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Commitments and Contingencies Disclosure [Line Items]
Self-insurance reserves	$ 3,809	$ 3,062

Related Party Transactions - Additional Information (Detail) - Carrier and Its Affiliates - Supplier Concentration Risk - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Related Party Transaction [Line Items]
Amount payable to Carrier and its affiliates, net of receivables	$ 125,000		$ 86,000
Revenues from sales to Carrier and its affiliates	$ 22,000	$ 21,000
Cost of Goods, Total
Related Party Transaction [Line Items]
Percentage of purchases from key suppliers	57.00%	61.00%

Subsequent Events - Additional Information (Detail) - Revolving Credit Facility [Member] - USD ($) $ in Thousands	Apr. 10, 2020	Dec. 05, 2018
Subsequent Event [Line Items]
Revolving credit agreement maximum borrowing capacity		$ 500,000
Subsequent Event
Subsequent Event [Line Items]
Revolving credit agreement maximum borrowing capacity	$ 560,000