Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
ORIDA |
||
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
Emerging growth company |
Page |
||||||
Item 1. |
3 |
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Item 1A. |
11 |
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Item 1B. |
16 |
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Item 2. |
16 |
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Item 3. |
16 |
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Item 4. |
16 |
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Item 5. |
16 |
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Item 6. |
18 |
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Item 7. |
18 |
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Item 7A. |
18 |
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Item 8. |
18 |
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Item 9. |
18 |
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Item 9A. |
18 |
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Item 9B. |
19 |
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Item 15. |
19 |
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Item 16. |
22 |
|||||
23 |
• | general economic conditions, both in the United States and in the international markets we serve; |
• | competitive factors within the HVAC/R industry; |
• | effects of supplier concentration; |
• | fluctuations in certain commodity costs; |
• | consumer spending; |
• | consumer debt levels; |
• | the continued impact of the COVID-19 pandemic; |
• | new housing starts and completions; |
• | capital spending in the commercial construction market; |
• | access to liquidity needed for operations; |
• | seasonal nature of product sales; |
• | weather patterns and conditions; |
• | insurance coverage risks; |
• | federal, state, and local regulations impacting our industry and products; |
• | prevailing interest rates; |
• | foreign currency exchange rate fluctuations; |
• | international risk; |
• | cybersecurity risk; and |
• | the continued viability of our business strategy. |
ITEM 1. |
BUSINESS |
The markets we serve are as follows: |
% of Revenues for the Year Ended December 31, 2020 |
Number of Locations as of December 31, 2020 |
||||||
United States |
90 | % | 541 | |||||
Canada |
6 | % | 36 | |||||
Latin America and the Caribbean |
4 | % | 23 | |||||
|
|
|
|
|||||
Total |
100 |
% |
600 |
|||||
|
|
|
|
Florida |
100 | |||
Texas |
83 | |||
North Carolina |
45 | |||
California |
36 | |||
Georgia |
33 | |||
South Carolina |
31 | |||
Virginia |
24 | |||
Tennessee |
22 | |||
Louisiana |
18 | |||
New York |
18 | |||
Pennsylvania |
15 | |||
New Jersey |
14 | |||
Alabama |
10 | |||
Arizona |
9 | |||
Connecticut |
9 | |||
Massachusetts |
9 | |||
Mississippi |
8 | |||
Missouri |
8 | |||
Kansas |
6 | |||
Maryland |
6 | |||
Oklahoma |
5 | |||
Utah |
5 | |||
Arkansas |
4 | |||
Indiana |
2 | |||
Iowa |
2 | |||
Kentucky |
2 | |||
Maine |
2 | |||
Nebraska |
2 | |||
Nevada |
2 | |||
South Dakota |
2 | |||
West Virginia |
2 | |||
Colorado |
1 | |||
Delaware |
1 | |||
New Hampshire |
1 | |||
New Mexico |
1 | |||
North Dakota |
1 | |||
Rhode Island |
1 | |||
Vermont |
1 | |||
|
|
|||
United States |
541 | |||
Canada |
36 | |||
Mexico |
12 | |||
Puerto Rico |
11 | |||
|
|
|||
Total |
600 |
|||
|
|
ITEM 1A. |
RISK FACTORS |
• | the ability to identify and consummate transactions with complementary acquisition candidates; |
• | the successful operation and/or integration of acquired companies; |
• | diversion of management’s attention from other daily functions; |
• | issuance by us of equity securities that would dilute ownership of our existing shareholders; |
• | incurrence and/or assumption of significant debt and contingent liabilities; and |
• | possible loss of key employees and/or customer relationships of the acquired companies. |
• | fluctuations in our operating results; |
• | a decision by the Board of Directors to reduce or eliminate cash dividends on our common stock; |
• | changes in recommendations or earnings estimates by securities analysts; |
• | general market conditions in our industry or in the economy as a whole; and |
• | political instability, natural disasters, war and/or events of terrorism. |
ITEM 1B. |
UNRESOLVED STAFF COMMENTS |
ITEM 2. |
PROPERTIES |
ITEM 3. |
LEGAL PROCEEDINGS |
ITEM 4. |
MINE SAFETY DISCLOSURES |
ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
12/31/15 |
12/31/16 |
12/31/17 |
12/31/18 |
12/31/19 |
12/31/20 |
|||||||||||||||||||
Watsco, Inc. |
100.00 | 130.00 | 153.87 | 129.98 | 175.41 | 228.94 | ||||||||||||||||||
Watsco Class B |
100.00 | 128.63 | 150.64 | 124.43 | 174.08 | 232.06 | ||||||||||||||||||
Russell 2000 Index |
100.00 | 121.31 | 139.08 | 123.76 | 155.35 | 186.36 | ||||||||||||||||||
S&P MidCap 400 Index |
100.00 | 120.74 | 140.35 | 124.80 | 157.49 | 179.00 | ||||||||||||||||||
S&P 500 Index |
100.00 | 111.96 | 136.40 | 130.42 | 171.49 | 203.04 |
ITEM 6. |
SELECTED FINANCIAL DATA |
ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. |
CONTROLS AND PROCEDURES |
ITEM 9B. |
OTHER INFORMATION |
ITEM 15. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a)(1) | Financial Statements. Our consolidated financial statements are incorporated by reference from our 2020 Annual Report. | |
(2) | Financial Statement Schedules. The schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. | |
(3) | Exhibits. The following exhibits are submitted with this Annual Report on Form 10-K or, where indicated, incorporated by reference to other filings. |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. # | |
104 | The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL. |
# |
filed herewith. |
+ | furnished herewith. |
* | Management contract or compensation plan or arrangement. |
ITEM 16. |
FORM 10-K SUMMARY |
WATSCO, INC. | ||||||
February 26, 2021 | By: | /s/ Albert H. Nahmad | ||||
Albert H. Nahmad, Chief Executive Officer | ||||||
February 26, 2021 | By: | /s/ Ana M. Menendez | ||||
Ana M. Menendez, Chief Financial Officer |
SIGNATURE |
TITLE |
DATE | ||
/S/ ALBERT H. NAHMAD Albert H. Nahmad |
Chairman of the Board and Chief Executive Officer (principal executive officer) | February 26, 2021 | ||
/S/ ANA M. MENENDEZ Ana M. Menendez |
Chief Financial Officer (principal accounting officer and principal financial officer) |
February 26, 2021 | ||
/S/ CESAR L. ALVAREZ Cesar L. Alvarez |
Director | February 26, 2021 | ||
/S/ J. MICHAEL CUSTER J. Michael Custer |
Director | February 26, 2021 | ||
/S/ DENISE DICKINS Denise Dickins |
Director | February 26, 2021 | ||
/S/ BRIAN E. KEELEY Brian E. Keeley |
Director | February 26, 2021 | ||
/S/ BOB L. MOSS Bob L. Moss |
Director | February 26, 2021 | ||
/S/ AARON J. NAHMAD Aaron J. Nahmad |
Director and President | February 26, 2021 | ||
/S/ STEVEN RUBIN Steven Rubin |
Director | February 26, 2021 | ||
/S/ GEORGE P. SAPE George P. Sape |
Director | February 26, 2021 |
EXHIBIT 10.1(w)
TWENTY-SECOND AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Twenty-second Amendment to Employment Agreement is made and entered into effective as of the 1st day of January 2021, by and between WATSCO, INC., a Florida corporation (hereinafter called the Company), and ALBERT H. NAHMAD (hereinafter called the Employee).
RECITALS
WHEREAS, the Company and the Employee entered into an Employment Agreement effective as of January 31, 1996 (the Employment Agreement) pursuant to which the Employee renders certain services to the Company; and
WHEREAS, the Compensation Committee of the Companys Board of Directors amended the Employment Agreement effective as of January 1, for each of 2001 through 2020; and
WHEREAS, the Compensation Committee of the Companys Board of Directors has determined that the Employees Base Salary will be $600,000 for calendar year 2021; and
WHEREAS, the Compensation Committee of the Companys Board of Directors has determined the Employees use of the Companys airplane for personal purposes for up to seventy (70) hours during the calendar year 2021. The Company shall pay all fuel and operational costs incident thereto. The value of the Employees usage of the Companys airplane shall be treated as compensation for tax purposes; and
WHEREAS, the Compensation Committee of the Companys Board of Directors has set the targets for the long-term performance-based compensation payable in the form of restricted shares by the Company to the Employee for the year 2021; and
WHEREAS, the long-term performance-based compensation payable by the Company to the Employee for the calendar year 2021 shall not exceed $10 million.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth in this Twenty-second Amendment, and other good and valuable consideration, the parties to this Twenty-second Amendment agree as follows:
1. All capitalized terms in this Twenty-second Amendment shall have the same meaning as in the Employment Agreement, unless otherwise specified.
2. The Employment Agreement is hereby amended by replacing Exhibit A-1 2020 Performance Goals and Long-term Performance Based Compensation with the attached Exhibit A-1 2021 Performance Goals and Long-term Performance Based Compensation thereto.
3. All other terms and conditions of the Employment Agreement shall remain the same.
IN WITNESS WHEREOF, the parties have caused this Twenty-second Amendment to be duly executed effective as of the day and year first above written.
WATSCO, INC. | ||
By: | /s/ Barry S. Logan | |
Barry S. Logan, Executive Vice President | ||
EMPLOYEE | ||
By: | /s/ Albert H. Nahmad | |
Albert H. Nahmad |
EXHIBIT A-1
2021 PERFORMANCE GOALS AND LONG-TERM PERFORMANCE BASED COMPENSATION
Overview
Watscos compensation program is grounded by the guiding principle that compensation should be highly dependent upon long-term shareholder returns. This key tenet of our compensation philosophy has driven the unique design of our program for many years and has enabled our executive leadership team to stay solidly focused on long-term performance. We have generated a compounded annual growth rate for total shareholder return of 19% over the last 30 years.
The most unique aspect of the program is the use of restricted stock that requires an executive to spend his or her entire career with the Company in order to vest. We believe granting restricted stock effectively balances strategic risk-taking and long-term performance, creates an ownership culture, and aligns the interests of high-performing leaders with the interests of our shareholders. Additionally, we believe these awards help build a sustainable future by ensuring that our executives make the right long-term business decisions that will survive well past their retirement.
We began granting restricted stock awards in 1997. All the restricted shares we have granted to our leaders throughout the Company vest upon reaching retirement age (usually 62 or older). Based on data provided by Equilar, the duration of our cliff-vesting period is solely unique to Watsco. Vesting may also occur at an even later date for those who extend their careers beyond age 62. This means that our key leaders will not know the value and cannot realize the value of their equity awards until they have spent their career with the Company. As it relates to our CEO, none of his restricted share awards have ever vested. On a weighted-average basis, his awards will vest in approximately 3.5 years.
In formulating the amount of a potential award, the Compensation Committee believes that the present-value of an award versus the face-value of an award is considerably less due to the unusually long vesting periods and associated risks of forfeiture.
Annual Performance-based Restricted Stock Award
The formula for determining the CEOs Annual Performance-based Restricted Stock Award has been consistent, and for 2021 is as follows:
Amount of Restricted Stock Award |
||||
A. Earnings Per Share (EPS) |
||||
For each $.01 increase if growth is below 5% For each $.01 increase if growth is at or above 5% |
$ $ |
43,500 65,000 |
| |
B. Increase in Common Stock Price |
||||
If the closing price of a share of Common Stock on 12/31/21 does not exceed $226.55 |
$ | 0 | ||
If the closing price of a share of Common Stock on 12/31/21 exceeds $226.55 but does not equal or exceed $271.86, for each $0.01 increase in per share price of a share of Common Stock above $226.55 |
$ | 1,200 | ||
If the closing price of a share of Common Stock on 12/31/21 equals or exceeds $271.86, for each $0.01 increase in per share price of a share of Common Stock above $226.55 |
$ | 1,800 |
Other Considerations
The amount of Performance-Based Restricted Stock Award shall be subject to a cap of $10 million.
The award shall be paid through the issuance of a number of restricted shares of Class B Common Stock of the Company (the Shares) equal to the amount determined by dividing (x) the Performance-Based Restricted Stock Award Amount by (y) the closing price for the Class B Common Stock of the Company on the New York Stock Exchange as of the close of trading on December 31, 2021. The value of any fractional shares shall be paid in cash.
The restrictions on the Shares shall lapse on the first to occur of (i) October 15, 2028, (ii) termination of the Executives employment with the Company by reason of Executives disability or death, (iii) the Executives termination of employment with the Company for Good Reason, (iv) the Companys termination of Executives employment without Cause, or (v) the occurrence of a Change in Control of the Company (Good Reason, Cause, and Change in Control to be defined in a manner consistent with the most recent grant of Restricted Stock by the Company to the Executive).
The Performance-Based Restricted Stock Award are being made by the Compensation Committee as performance awards of restricted stock pursuant to Section 8 of the Companys 2014 Incentive Compensation Plan or any successor plan (the Incentive Plan) and are subject to the limitations contained in Section 5(b)(ii) of the Incentive Plan.
Effective as of January 1, 2021 | ||
COMPENSATION COMMITTEE | ||
By: | /s/ Denise Dickins | |
Denise Dickins, Chair | ||
ACKNOWLEDGED AND ACCEPTED | ||
By: | /s/ Albert H. Nahmad | |
Albert H. Nahmad |
(In thousands, except per share data) |
2020 |
2019 |
2018 |
2017 |
2016 |
|||||||||||||||
FOR THE YEAR |
||||||||||||||||||||
Revenues |
$ | 5,054,928 | $ | 4,770,362 | $ | 4,546,653 | $ | 4,341,955 | $ | 4,220,702 | ||||||||||
Gross profit |
1,222,821 | 1,156,956 | 1,120,252 | 1,065,659 | 1,034,584 | |||||||||||||||
Operating income |
401,034 | 366,884 | 372,082 | 353,874 | 345,632 | |||||||||||||||
Net income |
323,172 | 295,775 | 296,529 | 257,290 | 235,983 | |||||||||||||||
Less: net income attributable to non-controlling interest |
53,593 | 49,825 | 53,597 | 49,069 | 53,173 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to Watsco, Inc. |
$ | 269,579 | $ | 245,950 | $ | 242,932 | $ | 208,221 | $ | 182,810 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Diluted earnings per share for Common and Class B common stock |
$ | 7.01 | $ | 6.50 | $ | 6.49 | $ | 5.81 | $ | 5.15 | ||||||||||
Cash dividends per share: |
||||||||||||||||||||
Common stock |
$ | 6.925 | $ | 6.40 | $ | 5.60 | $ | 4.60 | $ | 3.60 | ||||||||||
Class B common stock |
$ | 6.925 | $ | 6.40 | $ | 5.60 | $ | 4.60 | $ | 3.60 | ||||||||||
Weighted-average Common and Class B common shares outstanding - Diluted |
35,151 | 34,676 | 34,374 | 32,863 | 32,617 | |||||||||||||||
AT YEAR END |
||||||||||||||||||||
Total assets |
$ | 2,484,347 | $ | 2,556,161 | $ | 2,161,033 | $ | 2,046,877 | $ | 1,874,649 | ||||||||||
Total long-term obligations |
$ | 144,338 | $ | 311,980 | $ | 135,752 | $ | 22,085 | $ | 235,642 | ||||||||||
Total shareholders’ equity |
$ | 1,779,761 | $ | 1,714,767 | $ | 1,601,713 | $ | 1,550,977 | $ | 1,251,748 | ||||||||||
Number of employees |
5,800 | 5,800 | 5,200 | 5,200 | 5,050 |
(1) | Effective January 1, 2019, we adopted the provisions of accounting guidance related to leases. Amounts prior to January 1, 2019 have not been adjusted and remain as originally reported for such periods. |
(2) | Effective January 1, 2018, we adopted the provisions of accounting guidance related to revenue recognition. Amounts prior to January 1, 2018 have not been adjusted and remain as originally reported for such periods. |
• | general economic conditions, both in the United States and in the international markets we serve; |
• | competitive factors within the HVAC/R industry; |
• | effects of supplier concentration; |
• | fluctuations in certain commodity costs; |
• | consumer spending; |
• | consumer debt levels; |
• | the continued impact of the COVID-19 pandemic; |
• | new housing starts and completions; |
• | capital spending in the commercial construction market; |
• | access to liquidity needed for operations; |
• | seasonal nature of product sales; |
• | weather patterns and conditions; |
• | insurance coverage risks; |
• | federal, state, and local regulations impacting our industry and products; |
• | prevailing interest rates; |
• | foreign currency exchange rate fluctuations; |
• | international risk; |
• | cybersecurity risk; and |
• | the continued viability of our business strategy. |
2020 |
2019 |
2018 |
||||||||||
Revenues |
100.0 |
% |
100.0 | % | 100.0 | % | ||||||
Cost of sales |
75.8 |
75.7 | 75.4 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
24.2 |
24.3 | 24.6 | |||||||||
Selling, general and administrative expenses |
16.5 |
16.8 | 16.7 | |||||||||
Other income |
0.2 |
0.2 | 0.2 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
7.9 |
7.7 | 8.2 | |||||||||
Interest expense, net |
0.0 |
0.1 | 0.1 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
7.9 |
7.6 | 8.1 | |||||||||
Income taxes |
1.5 |
1.4 | 1.6 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
6.4 |
6.2 | 6.5 | |||||||||
Less: net income attributable to non-controlling interest |
1.1 |
1.0 | 1.2 | |||||||||
|
|
|
|
|
|
|||||||
Net income attributable to Watsco, Inc. |
5.3 |
% |
5.2 | % | 5.3 | % | ||||||
|
|
|
|
|
|
Note: | Due to rounding, percentages may not add up to 100. |
Number of Locations |
||||
December 31, 2018 |
571 | |||
Opened |
14 | |||
Acquired |
33 | |||
Closed |
(12 | ) | ||
|
|
|||
December 31, 2019 |
606 | |||
Opened |
3 | |||
Closed |
(9 | ) | ||
|
|
|||
December 31, 2020 |
600 |
|||
|
|
|||
|
|
• | cash needed to fund our business (primarily working capital requirements); |
• | borrowing capacity under our revolving credit facility; |
• | the ability to attract long-term capital with satisfactory terms; |
• | acquisitions, including joint ventures and investments in unconsolidated entities; |
• | dividend payments; |
• | capital expenditures; and |
• | the timing and extent of common stock repurchases. |
2020 |
2019 |
Change |
||||||||||
Cash flows provided by operating activities |
$ |
534.4 |
$ | 335.8 | $ | 198.6 | ||||||
Cash flows used in investing activities |
$ |
(16.3 |
) |
$ | (81.0 | ) | $ | 64.7 | ||||
Cash flows used in financing activities |
$ |
(448.5 |
) |
$ | (264.0 | ) | $ | (184.5 | ) |
Payments due by Period (in millions) |
||||||||||||||||||||||||||||
Contractual Obligations |
2021 |
2022 |
2023 |
2024 |
2025 |
Thereafter |
Total |
|||||||||||||||||||||
Operating leases (1) |
$ | 77.2 | $ | 62.3 | $ | 44.9 | $ | 25.1 | $ | 9.7 | $ | 6.8 | $ | 226.0 | ||||||||||||||
Purchase obligations (2) |
31.8 | — | — | — | — | — | 31.8 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 109.0 | $ | 62.3 | $ | 44.9 | $ | 25.1 | $ | 9.7 | $ | 6.8 | $ | 257.8 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes imputed interest of $16.2 million. Additional information related to operating leases can be found in Note 2 to our audited consolidated financial statements contained in this Annual Report on Form 10-K. |
(2) | Purchase obligations include amounts committed under purchase orders for goods with defined terms as to price, quantity, and delivery. Purchase orders made in the ordinary course of business that are cancelable are excluded from the above table. Any amounts for which we are liable under purchase orders for goods received are reflected in Accounts Payable in our audited consolidated balance sheets and are excluded from the above table. |
/s/ KPMG LLP | ||
Miami, Florida | ||
February 26, 2021 |
/s/ KPMG LLP |
Years Ended December 31, |
||||||||||||
(In thousands, except per share data) |
2020 |
2019 |
2018 |
|||||||||
Revenues |
$ | $ | $ | |||||||||
Cost of sales |
||||||||||||
|
|
|
|
|
|
|||||||
Gross profit |
||||||||||||
Selling, general and administrative expenses |
||||||||||||
Other income |
||||||||||||
|
|
|
|
|
|
|||||||
Operating income |
||||||||||||
Interest expense, net |
||||||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
||||||||||||
Income taxes |
||||||||||||
|
|
|
|
|
|
|||||||
Net income |
||||||||||||
Less: net income attributable to non-controlling interest |
||||||||||||
|
|
|
|
|
|
|||||||
Net income attributable to Watsco, Inc. |
$ | $ | $ | |||||||||
|
|
|
|
|
|
|||||||
Earnings per share for Common and Class B common stock: |
||||||||||||
Basic |
$ | $ | $ | |||||||||
|
|
|
|
|
|
|||||||
Diluted |
$ | $ | $ | |||||||||
|
|
|
|
|
|
Years Ended December 31, |
||||||||||||
(In thousands) |
2020 |
2019 |
2018 |
|||||||||
Net income |
$ | $ | $ | |||||||||
Other comprehensive income (loss), net of tax |
||||||||||||
Foreign currency translation adjustment |
( |
) | ||||||||||
Unrealized gain (loss) on cash flow hedging instruments |
( |
) | ||||||||||
Reclassification of gain on cash flow hedging instruments into earnings |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss) |
( |
) | ||||||||||
Comprehensive income |
||||||||||||
Less: comprehensive income attributable to non-controlling interest |
||||||||||||
|
|
|
|
|
|
|||||||
Comprehensive income attributable to Watsco, Inc. |
$ | $ | $ | |||||||||
|
|
|
|
|
|
December 31, |
||||||||
(In thousands, except share and per share data) |
2020 |
2019 |
||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net |
||||||||
Inventories, net |
||||||||
Other current assets |
||||||||
|
|
|
|
|||||
Total current assets |
||||||||
|
|
|
|
|||||
Property and equipment, net |
||||||||
Operating lease right-of-use |
||||||||
Goodwill |
||||||||
Intangible assets, net |
||||||||
Investment in unconsolidated entity |
||||||||
Other assets |
||||||||
|
|
|
|
|||||
$ | $ | |||||||
|
|
|
|
|||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term obligations |
$ | $ | ||||||
Accounts payable |
||||||||
Accrued expenses and other current liabilities |
||||||||
|
|
|
|
|||||
Total current liabilities |
||||||||
|
|
|
|
|||||
Long-term obligations: |
||||||||
Borrowings under revolving credit agreement |
||||||||
Operating lease liabilities, net of current portion |
||||||||
Finance lease liabilities, net of current portion |
||||||||
|
|
|
|
|||||
Total long-term obligations |
||||||||
|
|
|
|
|||||
Deferred income taxes and other liabilities |
||||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Watsco, Inc. shareholders’ equity: |
||||||||
Common stock, $ |
||||||||
Class B common stock, $ |
||||||||
Preferred stock, $ |
||||||||
Paid-in capital |
||||||||
Accumulated other comprehensive loss, net of tax |
( |
) | ( |
) | ||||
Retained earnings |
||||||||
Treasury stock, at cost, |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Total Watsco, Inc. shareholders’ equity |
||||||||
Non-controlling interest |
||||||||
|
|
|
|
|||||
Total shareholders’ equity |
||||||||
|
|
|
|
|||||
$ | $ | |||||||
|
|
|
|
(In thousands, except share and per share data) |
Common Stock, Class B Common Stock and Preferred Stock Shares |
Common Stock, Class B Common Stock and Preferred Stock Amount |
Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Treasury Stock |
Non- controlling Interest |
Total |
||||||||||||||||||||||||
Balance at December 31, 2017 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
Cumulative-effect adjustment |
( |
) | — | |||||||||||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive loss |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock |
( |
) | — | |||||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock |
( |
) | ( |
) | — | |||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ |
( |
( |
) | |||||||||||||||||||||||||||||
Common stock issued for Alert Labs, Inc. |
||||||||||||||||||||||||||||||||
Investment in unconsolidated entity |
||||||||||||||||||||||||||||||||
Distributions to non-controlling interest |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at December 31, 2018 |
( |
) |
( |
) |
||||||||||||||||||||||||||||
(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 |
( |
) |
( |
) |
||||||||||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive gain |
||||||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock |
( |
) | — | |||||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock |
( |
) | ( |
) | — | |||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Common stock issued for Dunphey & Associates Supply Co., Inc. |
||||||||||||||||||||||||||||||||
Investment in unconsolidated entity |
||||||||||||||||||||||||||||||||
Decrease in non-controlling interest in Carrier Enterprise II |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Common stock issued for Peirce-Phelps, Inc. |
||||||||||||||||||||||||||||||||
Investment in Peirce-Phelps, Inc. |
||||||||||||||||||||||||||||||||
Common stock issued for N&S Supply of Fishkill, Inc. |
||||||||||||||||||||||||||||||||
Distributions to non-controlling interest |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at December 31, 2019 |
( |
) |
( |
) |
||||||||||||||||||||||||||||
(In thousands, except share and per share data) |
Common Stock, Class B Common Stock and Preferred Stock Shares |
Common Stock, Class B Common Stock and Preferred Stock Amount |
Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Treasury Stock |
Non- controlling Interest |
Total |
||||||||||||||||||||||||
Balance at December 31, 2019 |
( |
) |
( |
) |
||||||||||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive gain |
||||||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock |
( |
) | — | |||||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock |
( |
) | ( |
) | — | |||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Adjustment to fair value of Common stock issued for N&S Supply of Fishkill, Inc. |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Distributions to non-controlling interest |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at December 31, 2020 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
Years Ended December 31, |
||||||||||||
(In thousands) |
2020 |
2019 |
2018 |
|||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
||||||||||||
Share-based compensation |
||||||||||||
Non-cash contribution to 401(k) plan |
||||||||||||
Provision for doubtful accounts |
||||||||||||
Loss (gain) on sale of property and equipment |
( |
) | ||||||||||
Deferred income tax provision |
||||||||||||
Other income from investment in unconsolidated entity |
( |
) | ( |
) | ( |
) | ||||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||||||
Accounts receivable |
( |
) | ( |
) | ||||||||
Inventories, net |
( |
) | ( |
) | ||||||||
Accounts payable and other liabilities |
( |
) | ||||||||||
Other, net |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
||||||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities: |
||||||||||||
Capital expenditures |
( |
) | ( |
) | ( |
) | ||||||
Business acquisitions, net of cash acquired |
— | ( |
) | ( |
) | |||||||
Investment in unconsolidated entity |
— | ( |
) | ( |
) | |||||||
Proceeds from sale of property and equipment |
||||||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities: |
||||||||||||
Dividends on Common and Class B common stock |
( |
) | ( |
) | ( |
) | ||||||
Net (repayments) proceeds under current revolving credit agreement |
( |
) | ||||||||||
Distributions to non-controlling interest |
( |
) | ( |
) | ( |
) | ||||||
Repurchases of common stock to satisfy employee withholding tax obligations |
( |
) | ( |
) | ( |
) | ||||||
Net (repayments) proceeds of other long-term obligations |
( |
) | ( |
) | ||||||||
Payment of fees related to revolving credit agreement |
( |
) | — | ( |
) | |||||||
Purchase of additional ownership from non-controlling interest |
— | ( |
) | — | ||||||||
Net repayments under prior revolving credit agreement |
— | — | ( |
) | ||||||||
Proceeds from non-controlling interest for investment in unconsolidated entity |
— | |||||||||||
Proceeds from non-controlling interest for investment in Peirce-Phelps, Inc. |
— | — | ||||||||||
Net proceeds from issuances of common stock |
||||||||||||
|
|
|
|
|
|
|||||||
Net cash used in financing activities |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Effect of foreign exchange rate changes on cash and cash equivalents |
( |
) | ||||||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||||||
Cash and cash equivalents at beginning of year |
||||||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at end of year |
$ | $ | $ | |||||||||
|
|
|
|
|
|
Supplemental cash flow information (Note 22) |
Level 1 |
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2 |
Observable inputs other than Level 1 prices such as quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; or model-driven valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 |
Unobservable inputs for the asset or liability. These inputs reflect our own assumptions about the assumptions a market participant would use in pricing the asset or liability. |
Years Ended December 31, |
2020 |
2019 |
||||||
Lease cost |
$ |
$ | ||||||
Short-term lease cost |
||||||||
Variable lease cost |
||||||||
Sublease income |
( |
) |
( |
) | ||||
Total operating lease cost |
$ |
$ | ||||||
December 31, |
2020 |
2019 |
||||||
ROU assets |
$ |
$ | ||||||
Current portion of operating lease liabilities |
$ |
$ | ||||||
Operating lease liabilities |
||||||||
Total operating lease liabilities |
$ |
$ | ||||||
Weighted Average Remaining Lease Term (in years) |
||||||||
Weighted Average Discount Rate |
% |
% |
Years Ended December 31, |
2020 |
2019 |
||||||
Operating cash flows for the measurement of operating lease liabilities |
$ |
$ | ||||||
Operating lease ROU assets obtained in exchange for operating lease obligations |
$ |
$ |
2021 |
$ | |||
2022 |
||||
2023 |
||||
2024 |
||||
2025 |
||||
Thereafter |
||||
Total lease payments |
||||
Less imputed interest |
||||
Total lease liability |
$ |
|||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Primary Geographical Regions: |
||||||||||||
United States |
$ |
$ | $ | |||||||||
Canada |
||||||||||||
Latin America and the Caribbean |
||||||||||||
$ |
$ | $ | ||||||||||
Major Product Lines: |
||||||||||||
HVAC equipment |
% |
% | % | |||||||||
Other HVAC products |
% |
% | % | |||||||||
Commercial refrigeration products |
% |
% | % | |||||||||
% |
% | % | ||||||||||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Basic Earnings per Share: |
||||||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | $ | |||||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock |
||||||||||||
Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | $ | |||||||||
Weighted-average common shares outstanding - Basic |
||||||||||||
Basic earnings per share for Common and Class B common stock |
$ |
$ | $ | |||||||||
Allocation of earnings for Basic: |
||||||||||||
Common stock |
$ |
$ | $ | |||||||||
Class B common stock |
||||||||||||
$ |
$ | $ | ||||||||||
Diluted Earnings per Share: |
||||||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | $ | |||||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock |
||||||||||||
Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | $ | |||||||||
Weighted-average common shares outstanding - Basic |
||||||||||||
Effect of dilutive stock options |
||||||||||||
Weighted-average common shares outstanding - Diluted |
||||||||||||
Diluted earnings per share for Common and Class B common stock |
$ |
$ | $ | |||||||||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Foreign currency translation adjustment |
$ |
$ | $ | ( |
) | |||||||
Unrealized gain (loss) on cash flow hedging instruments |
( |
) | ||||||||||
Income tax (expense) benefit |
( |
) |
( |
) | ||||||||
Unrealized gain (loss) on cash flow hedging instruments, net of tax |
( |
) | ||||||||||
Reclassification of gain on cash flow hedging instruments into earnings |
( |
) |
( |
) | ( |
) | ||||||
Income tax expense |
||||||||||||
Reclassification of gain on cash flow hedging instruments into earnings, net of tax |
( |
) |
( |
) | ( |
) | ||||||
Other comprehensive income (loss) |
$ |
$ | $ | ( |
) | |||||||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Foreign currency translation adjustment: |
||||||||||||
Beginning balance |
$ |
( |
) |
$ | ( |
) | $ | ( |
) | |||
Current period other comprehensive income (loss) |
( |
) | ||||||||||
Ending balance |
( |
) |
( |
) | ( |
) | ||||||
Cash flow hedging instruments: |
||||||||||||
Beginning balance |
( |
) |
( |
) | ||||||||
Current period other comprehensive income (loss) |
( |
) | ||||||||||
Reclassification adjustment |
( |
) |
( |
) | ( |
) | ||||||
Ending balance |
( |
) |
( |
) | ||||||||
Equity securities: |
||||||||||||
Beginning balance |
— |
— |
( |
) | ||||||||
Cumulative-effect adjustment to retained earnings |
— |
— |
||||||||||
Ending balance |
||||||||||||
Accumulated other comprehensive loss, net of tax |
$ |
( |
) |
$ | ( |
) | $ | ( |
) | |||
December 31, |
2020 |
2019 |
||||||
Land |
$ |
$ | ||||||
Buildings and improvements |
||||||||
Machinery, vehicles , and equipment |
||||||||
Computer hardware and software |
||||||||
Furniture and fixtures |
||||||||
|
|
|
|
|||||
Accumulated depreciation and amortization |
( |
) |
( |
) | ||||
|
|
|
|
|||||
$ |
$ | |||||||
|
|
|
|
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Current: |
||||||||||||
U.S. Federal |
$ |
$ | $ | |||||||||
State |
||||||||||||
Foreign |
||||||||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
U.S. Federal |
||||||||||||
State |
||||||||||||
Foreign |
( |
) |
( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ |
$ | $ | |||||||||
|
|
|
|
|
|
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
U.S. federal statutory rate |
% |
% | % | |||||||||
State income taxes, net of federal benefit and other |
||||||||||||
Excess tax benefits from share-based compensation |
( |
) |
( |
) | ( |
) | ||||||
Tax effects on foreign income |
||||||||||||
GILTI |
— | ( |
) | |||||||||
Tax credits and other |
( |
) |
( |
) | — | |||||||
Repatriation transition tax |
— | — | ( |
) | ||||||||
Deferred tax impact of enacted tax rate changes |
— | — | ||||||||||
|
|
|
|
|
|
|||||||
Effective income tax rate attributable to Watsco, Inc. |
||||||||||||
Taxes attributable to non-controlling interest |
( |
) |
( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Effective income tax rate |
% |
% | % | |||||||||
|
|
|
|
|
|
December 31, |
2020 |
2019 |
||||||
Deferred tax assets: |
||||||||
Share-based compensation |
$ |
$ | ||||||
Capitalized inventory costs and inventory reserves |
||||||||
Allowance for doubtful accounts |
||||||||
Self-insurance reserves |
||||||||
Other |
||||||||
Net operating loss carryforwards |
||||||||
|
|
|
|
|||||
Valuation allowance |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Total deferred tax assets |
||||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Deductible goodwill |
( |
) |
( |
) | ||||
Depreciation |
( |
) |
( |
) | ||||
Other |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Total deferred tax liabilities |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Net deferred tax liabilities (1) |
$ |
( |
) |
$ | ( |
) | ||
|
|
|
|
(1) | Net deferred tax liabilities have been included in the consolidated balance sheets in deferred income taxes and other liabilities. |
Balance at December 31, 2017 |
$ | |||
Additions based on tax positions related to the current year |
||||
Reductions due to lapse of applicable statute of limitations |
( |
) | ||
|
|
|||
Balance at December 31, 2018 |
||||
Additions based on tax positions related to the current year |
||||
Reductions due to lapse of applicable statute of limitations |
( |
) | ||
|
|
|||
Balance at December 31, 2019 |
||||
Additions based on tax positions related to the current year |
||||
Reductions due to lapse of applicable statute of limitations |
( |
) | ||
|
|
|||
Balance at December 31, 2020 |
$ |
|||
|
|
Options |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value |
|||||||||||||
Options outstanding at December 31, 2019 |
$ | |||||||||||||||
Granted |
||||||||||||||||
Exercised |
( |
) | ||||||||||||||
Forfeited |
( |
) | ||||||||||||||
Options outstanding at December 31, 2020 |
$ |
$ |
||||||||||||||
Options exercisable at December 31, 2020 |
$ |
$ |
||||||||||||||
Shares |
Weighted- Average Grant Date Fair Value |
|||||||
Non-vested restricted stock outstanding at December 31, 2019 |
$ | |||||||
Granted |
||||||||
Vested |
( |
) | ||||||
Forfeited |
( |
) | ||||||
Non-vested restricted stock outstanding at December 31, 2020 |
$ |
|||||||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Expected term in years |
||||||||||||
Risk-free interest rate |
% |
% | % | |||||||||
Expected volatility |
% |
% | % | |||||||||
Expected dividend yield |
% |
% | % | |||||||||
Grant date fair value |
$ |
$ | $ |
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Stock options |
$ |
$ | $ | |||||||||
Non-vested restricted stock |
||||||||||||
Share-based compensation expense |
$ |
$ | $ | |||||||||
Cash and cash equivalents |
$ | |||
Accounts receivable |
||||
Inventories |
||||
Other current assets |
||||
Property and equipment |
||||
Operating lease ROU assets |
||||
Goodwill |
||||
Intangibles |
||||
Other assets |
||||
Accounts payable |
( |
) | ||
Accrued expenses and other current liabilities |
( |
) | ||
Operating lease liabilities, net of current portion |
( |
) | ||
Total |
$ | |||
Balance at December 31, 2018 |
$ | |||
Acquired goodwill |
||||
Foreign currency translation adjustment |
||||
Balance at December 31, 2019 |
||||
Acquired goodwill |
||||
Foreign currency translation adjustment |
||||
Balance at December 31, 2020 |
$ |
|||
December 31, |
Estimated Useful Lives |
2020 |
2019 |
|||||||||
Indefinite lived intangible assets - Trade names, trademarks , and distribution rights |
$ |
$ | ||||||||||
Finite lived intangible assets: |
||||||||||||
Customer relationships |
||||||||||||
Patented and unpatented technology |
||||||||||||
Trade name |
||||||||||||
Accumulated amortization |
( |
) |
( |
) | ||||||||
Finite lived intangible assets, net |
||||||||||||
$ |
$ | |||||||||||
2021 |
$ | |||
2022 |
$ | |||
2023 |
$ | |||
2024 |
$ | |||
2025 |
$ |
Years Ended December 31, |
2020 |
2019 |
||||||
Gain (loss) recorded in accumulated other comprehensive loss |
$ |
$ | ( |
) | ||||
Gain reclassified from accumulated other comprehensive loss into earnings |
$ |
( |
) |
$ | ( |
) |
Asset Derivatives |
Liability Derivatives |
|||||||||||||||
December 31, |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Derivatives designated as hedging instruments |
$ |
$ | — | $ |
$ | |||||||||||
Derivatives not designated as hedging instruments |
— | |||||||||||||||
Total derivative instruments |
$ |
$ | — | $ |
$ | |||||||||||
Total |
Fair Value Measurements at December 31, 2020 Using |
|||||||||||||||||
Balance Sheet Location |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||
Assets: |
||||||||||||||||||
Equity securities |
Other assets |
$ |
$ |
— | — | |||||||||||||
Liabilities: |
||||||||||||||||||
Derivative financial instruments |
Accrued expenses and other current liabilities |
$ |
— |
$ |
— |
Total |
Fair Value Measurements at December 31, 2019 Using |
||||||||||||||||||
Balance Sheet Location |
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||
Assets: |
|||||||||||||||||||
Equity securities |
Other assets |
$ | $ | — | — | ||||||||||||||
Private equities |
Other assets |
$ |
— |
— |
$ |
||||||||||||||
Liabilities: |
|||||||||||||||||||
Derivative financial instruments |
Accrued expenses and other current liabilities |
$ | — | $ | — |
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Revenues: |
||||||||||||
United States |
$ |
$ |
$ |
|||||||||
Canada |
||||||||||||
Latin America and the Caribbean |
||||||||||||
Total revenues |
$ |
$ | $ | |||||||||
December 31, |
2020 |
2019 |
||||||
Long-Lived Assets: |
||||||||
United States |
$ |
$ |
||||||
Canada |
||||||||
Latin America and the Caribbean |
||||||||
Total long-lived assets |
$ |
$ |
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Interest paid |
$ |
$ | $ | |||||||||
Income taxes net of refunds |
$ |
$ | $ | |||||||||
Common stock issued for N&S Supply of Fishkill, Inc. |
$ |
( |
) |
$ | — | |||||||
Common stock issued for Peirce-Phelps, Inc. |
— | $ | — | |||||||||
Common stock issued for Dunphey & Associates Supply Co., Inc. |
— | $ | — | |||||||||
Common stock issued for Alert Labs, Inc. |
— | — | $ |
(In thousands, except per share data) |
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
Total |
|||||||||||||||
Year Ended December 31, 2020 |
||||||||||||||||||||
Revenues (1) |
$ | $ | $ | $ | $ | |||||||||||||||
Gross profit |
$ | $ | $ | $ | $ | |||||||||||||||
Net income attributable to Watsco, Inc. |
$ | $ | $ | $ | $ | |||||||||||||||
Earnings per share for Common and Class B common stock (2): |
||||||||||||||||||||
Basic |
$ | $ | $ | $ | $ | |||||||||||||||
Diluted |
$ | $ | $ | $ | $ | |||||||||||||||
Year Ended December 31, 2019 |
||||||||||||||||||||
Revenues (1) |
$ | $ | $ | $ | $ | |||||||||||||||
Gross profit |
$ | $ | $ | $ | $ | |||||||||||||||
Net income attributable to Watsco, Inc. |
$ | $ | $ | $ | $ | |||||||||||||||
Earnings per share for Common and Class B common stock (2): |
||||||||||||||||||||
Basic |
$ | $ | $ | $ | $ | |||||||||||||||
Diluted |
$ | $ | $ | $ | $ | |||||||||||||||
(1) | Sales of residential central air conditioners, heating equipment and parts and supplies are seasonal. 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 is fairly evenly distributed throughout the year except for dependence on housing completions and related weather and economic conditions. |
(2) | Quarterly and year-to-date |
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The following table sets forth the significant subsidiaries of Watsco, Inc. as of December 31, 2020, and their respective incorporation jurisdictions. The names of various other wholly owned subsidiaries have been omitted. None of the foregoing omitted subsidiaries, considered either alone or in the aggregate as a single subsidiary, constitutes a significant subsidiary.
Name of Subsidiary |
State or Other Jurisdiction of Incorporation |
Percent of Ownership | ||
Alert Labs, Inc. |
Ontario, Canada | 100% | ||
Baker Distributing Company LLC |
Delaware | 100% | ||
Boreal International Corporation |
Florida | 100% | ||
Carrier Enterprise Canada, L.P. |
Ontario, Canada | 60% | ||
Carrier Enterprise Mexico S. de R.L. de C.V. |
Mexico | 80% | ||
Carrier Enterprise, LLC |
Delaware | 80% | ||
Carrier Enterprise Northeast, LLC |
Delaware | 80% | ||
Carrier InterAmerica Corporation |
Delaware | 80% | ||
Carrier (Puerto Rico), Inc. |
Delaware | 80% | ||
East Coast Metal Distributors LLC |
Delaware | 100% | ||
Gemaire Distributors LLC |
Delaware | 100% | ||
Heating & Cooling Supply LLC |
California | 100% | ||
Homans Associates II LLC |
Delaware | 100% | ||
N&S Supply LLC |
Delaware | 100% | ||
Peirce-Phelps LLC |
Delaware | 80% | ||
Tradewinds Distributing Company, LLC |
Delaware | 100% |
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Watsco, Inc.:
We consent to the incorporation by reference in the registration statement (No. 333-228269) on Form S-3 and (No. 333-197795, 333-185345, and 333-159776) on Form S-8 of Watsco, Inc. of our reports dated February 26, 2021, with respect to the consolidated balance sheets of Watsco, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and the effectiveness of internal control over financial reporting as of December 31, 2020, which reports appear in the December 31, 2020 annual report on Form 10-K of the Company.
Our report on the consolidated financial statements refers to a change in the Companys method of accounting for leases as of January 1, 2019, due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), as amended.
/s/ KPMG LLP |
Miami, Florida
February 26, 2021
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Albert H. Nahmad, certify that:
1. | I have reviewed this Annual Report on Form 10-K of Watsco, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 26, 2021
/s/ Albert H. Nahmad |
Albert H. Nahmad Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Barry S. Logan, certify that:
1. | I have reviewed this Annual Report on Form 10-K of Watsco, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 26, 2021
/s/ Barry S. Logan |
Barry S. Logan Executive Vice President |
EXHIBIT 31.3
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ana M. Menendez, certify that:
1. | I have reviewed this Annual Report on Form 10-K of Watsco, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 26, 2021
/s/ Ana M. Menendez |
Ana M. Menendez Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Watsco, Inc. (Watsco) on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the Report), Albert H. Nahmad, as Chief Executive Officer of Watsco, Barry S. Logan, as Executive Vice President of Watsco and Ana M. Menendez, as Chief Financial Officer of Watsco, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Watsco. |
/s/ Albert H. Nahmad |
Albert H. Nahmad Chief Executive Officer February 26, 2021 |
/s/ Barry S. Logan |
Barry S. Logan Executive Vice President February 26, 2021 |
/s/ Ana M. Menendez |
Ana M. Menendez Chief Financial Officer February 26, 2021 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Watsco and will be retained by Watsco and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by Watsco for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.