Form 10-Q
Q3--12-31false0000105016 0000105016 2022-01-01 2022-09-30 0000105016 2021-01-01 2021-09-30 0000105016 2022-07-01 2022-09-30 0000105016 2021-07-01 2021-09-30 0000105016 2022-09-30 0000105016 2021-12-31 0000105016 2022-01-01 2022-03-31 0000105016 2022-04-01 2022-06-30 0000105016 2021-01-01 2021-03-31 0000105016 2021-04-01 2021-06-30 0000105016 2021-09-30 0000105016 2020-12-31 0000105016 2022-03-31 0000105016 2022-06-30 0000105016 2021-03-31 0000105016 2021-06-30 0000105016 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2021-01-01 2021-09-30 0000105016 us-gaap:SupplierConcentrationRiskMember us-gaap:CostOfGoodsTotalMember wso:CarrierAndItsAffiliatesMember 2021-01-01 2021-09-30 0000105016 us-gaap:ForeignExchangeForwardMember us-gaap:CashFlowHedgingMember 2021-01-01 2021-09-30 0000105016 us-gaap:CommonStockMember 2021-01-01 2021-09-30 0000105016 us-gaap:CommonClassBMember 2021-01-01 2021-09-30 0000105016 us-gaap:SupplierConcentrationRiskMember wso:CarrierAndItsAffiliatesMember 2021-01-01 2021-09-30 0000105016 wso:CustomaryFeesForLegalServicesMember wso:GreenbergTraurigMember 2021-01-01 2021-09-30 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2021-01-01 2021-09-30 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2021-01-01 2021-09-30 0000105016 us-gaap:CommonStockMember us-gaap:EmployeeStockOptionMember 2021-01-01 2021-09-30 0000105016 wso:HvacEquipmentMember 2021-01-01 2021-09-30 0000105016 wso:OtherHvacProductsMember 2021-01-01 2021-09-30 0000105016 wso:CommercialRefrigerationProductsMember 2021-01-01 2021-09-30 0000105016 wso:LatinAmericaAndCaribbeanMember 2021-01-01 2021-09-30 0000105016 country:CA 2021-01-01 2021-09-30 0000105016 country:US 2021-01-01 2021-09-30 0000105016 us-gaap:CommonClassBMember us-gaap:RestrictedStockMember 2021-01-01 2021-09-30 0000105016 wso:CommonAndClassBCommonStockMember 2021-01-01 2021-09-30 0000105016 wso:EmployeeStockPurchasePlanMember us-gaap:CommonStockMember 2021-01-01 2021-09-30 0000105016 us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember wso:ForeignExchangeForwardAndOptionContractsMember 2021-01-01 2021-09-30 0000105016 wso:MakdadIndustrialSupplyCoIncMember 2021-01-01 2021-09-30 0000105016 wso:AcmeRefrigerationOfBatonRougeLlcMember 2021-01-01 2021-09-30 0000105016 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2021-07-01 2021-09-30 0000105016 us-gaap:SupplierConcentrationRiskMember us-gaap:CostOfGoodsTotalMember wso:CarrierAndItsAffiliatesMember 2021-07-01 2021-09-30 0000105016 us-gaap:ForeignExchangeForwardMember us-gaap:CashFlowHedgingMember 2021-07-01 2021-09-30 0000105016 us-gaap:CommonStockMember 2021-07-01 2021-09-30 0000105016 us-gaap:CommonClassBMember 2021-07-01 2021-09-30 0000105016 us-gaap:SupplierConcentrationRiskMember wso:CarrierAndItsAffiliatesMember 2021-07-01 2021-09-30 0000105016 wso:GreenbergTraurigMember wso:CustomaryFeesForLegalServicesMember 2021-07-01 2021-09-30 0000105016 us-gaap:CommonStockMember us-gaap:EmployeeStockOptionMember 2021-07-01 2021-09-30 0000105016 us-gaap:RetainedEarningsMember 2021-07-01 2021-09-30 0000105016 us-gaap:NoncontrollingInterestMember 2021-07-01 2021-09-30 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-07-01 2021-09-30 0000105016 us-gaap:AdditionalPaidInCapitalMember 2021-07-01 2021-09-30 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2021-07-01 2021-09-30 0000105016 wso:HvacEquipmentMember 2021-07-01 2021-09-30 0000105016 wso:OtherHvacProductsMember 2021-07-01 2021-09-30 0000105016 wso:CommercialRefrigerationProductsMember 2021-07-01 2021-09-30 0000105016 wso:LatinAmericaAndCaribbeanMember 2021-07-01 2021-09-30 0000105016 country:CA 2021-07-01 2021-09-30 0000105016 country:US 2021-07-01 2021-09-30 0000105016 us-gaap:CommonClassBMember us-gaap:RestrictedStockMember 2021-07-01 2021-09-30 0000105016 wso:CommonAndClassBCommonStockMember 2021-07-01 2021-09-30 0000105016 us-gaap:CommonStockMember wso:EmployeeStockPurchasePlanMember 2021-07-01 2021-09-30 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember 2021-07-01 2021-09-30 0000105016 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2022-01-01 2022-09-30 0000105016 wso:CarrierAndItsAffiliatesMember us-gaap:CostOfGoodsTotalMember us-gaap:SupplierConcentrationRiskMember 2022-01-01 2022-09-30 0000105016 us-gaap:ForeignExchangeForwardMember us-gaap:CashFlowHedgingMember 2022-01-01 2022-09-30 0000105016 us-gaap:CommonStockMember 2022-01-01 2022-09-30 0000105016 us-gaap:CommonClassBMember 2022-01-01 2022-09-30 0000105016 us-gaap:SupplierConcentrationRiskMember wso:CarrierAndItsAffiliatesMember 2022-01-01 2022-09-30 0000105016 wso:CustomaryFeesForLegalServicesMember wso:GreenbergTraurigMember 2022-01-01 2022-09-30 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember 2022-01-01 2022-09-30 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2022-01-01 2022-09-30 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2022-01-01 2022-09-30 0000105016 us-gaap:EmployeeStockOptionMember us-gaap:CommonStockMember 2022-01-01 2022-09-30 0000105016 wso:HvacEquipmentMember 2022-01-01 2022-09-30 0000105016 wso:OtherHvacProductsMember 2022-01-01 2022-09-30 0000105016 wso:CommercialRefrigerationProductsMember 2022-01-01 2022-09-30 0000105016 wso:LatinAmericaAndCaribbeanMember 2022-01-01 2022-09-30 0000105016 country:CA 2022-01-01 2022-09-30 0000105016 country:US 2022-01-01 2022-09-30 0000105016 us-gaap:RestrictedStockMember us-gaap:CommonClassBMember 2022-01-01 2022-09-30 0000105016 wso:CommonAndClassBCommonStockMember 2022-01-01 2022-09-30 0000105016 wso:EmployeeStockPurchasePlanMember us-gaap:CommonStockMember 2022-01-01 2022-09-30 0000105016 us-gaap:CommonStockMember 2022-01-01 2022-09-30 0000105016 wso:AtmProgramMember 2022-01-01 2022-09-30 0000105016 us-gaap:CommonStockMember us-gaap:CommonClassBMember 2022-07-01 2022-09-30 0000105016 wso:CarrierAndItsAffiliatesMember us-gaap:CostOfGoodsTotalMember us-gaap:SupplierConcentrationRiskMember 2022-07-01 2022-09-30 0000105016 us-gaap:CashFlowHedgingMember us-gaap:ForeignExchangeForwardMember 2022-07-01 2022-09-30 0000105016 us-gaap:CommonStockMember 2022-07-01 2022-09-30 0000105016 us-gaap:CommonClassBMember 2022-07-01 2022-09-30 0000105016 us-gaap:SupplierConcentrationRiskMember wso:CarrierAndItsAffiliatesMember 2022-07-01 2022-09-30 0000105016 wso:CustomaryFeesForLegalServicesMember wso:GreenbergTraurigMember 2022-07-01 2022-09-30 0000105016 us-gaap:EmployeeStockOptionMember us-gaap:CommonStockMember 2022-07-01 2022-09-30 0000105016 us-gaap:RetainedEarningsMember 2022-07-01 2022-09-30 0000105016 us-gaap:NoncontrollingInterestMember 2022-07-01 2022-09-30 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-07-01 2022-09-30 0000105016 us-gaap:AdditionalPaidInCapitalMember 2022-07-01 2022-09-30 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2022-07-01 2022-09-30 0000105016 wso:HvacEquipmentMember 2022-07-01 2022-09-30 0000105016 wso:OtherHvacProductsMember 2022-07-01 2022-09-30 0000105016 wso:CommercialRefrigerationProductsMember 2022-07-01 2022-09-30 0000105016 wso:LatinAmericaAndCaribbeanMember 2022-07-01 2022-09-30 0000105016 country:CA 2022-07-01 2022-09-30 0000105016 country:US 2022-07-01 2022-09-30 0000105016 us-gaap:RestrictedStockMember us-gaap:CommonClassBMember 2022-07-01 2022-09-30 0000105016 wso:CommonAndClassBCommonStockMember 2022-07-01 2022-09-30 0000105016 wso:EmployeeStockPurchasePlanMember us-gaap:CommonStockMember 2022-07-01 2022-09-30 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember 2022-07-01 2022-09-30 0000105016 us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember wso:ForeignExchangeForwardAndOptionContractsMember 2022-09-30 0000105016 us-gaap:SupplierConcentrationRiskMember wso:CarrierAndItsAffiliatesMember 2022-09-30 0000105016 us-gaap:CommonStockMember 2022-09-30 0000105016 us-gaap:CommonClassBMember 2022-09-30 0000105016 us-gaap:DesignatedAsHedgingInstrumentMember wso:ForeignExchangeForwardAndOptionContractsMember 2022-09-30 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember 2022-09-30 0000105016 wso:AccruedExpensesAndOtherCurrentLiabilitiesMember 2022-09-30 0000105016 wso:AccruedExpensesAndOtherCurrentLiabilitiesMember us-gaap:FairValueInputsLevel2Member 2022-09-30 0000105016 us-gaap:FairValueInputsLevel1Member us-gaap:OtherAssetsMember 2022-09-30 0000105016 us-gaap:OtherAssetsMember 2022-09-30 0000105016 wso:GreenbergTraurigMember 2022-09-30 0000105016 us-gaap:FairValueInputsLevel3Member us-gaap:OtherAssetsMember 2022-09-30 0000105016 wso:CarrierAndItsAffiliatesMember us-gaap:SupplierConcentrationRiskMember 2021-12-31 0000105016 us-gaap:CommonStockMember 2021-12-31 0000105016 us-gaap:CommonClassBMember 2021-12-31 0000105016 us-gaap:DesignatedAsHedgingInstrumentMember wso:ForeignExchangeForwardAndOptionContractsMember 2021-12-31 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember 2021-12-31 0000105016 wso:ForeignExchangeForwardAndOptionContractsMember 2021-12-31 0000105016 wso:AccruedExpensesAndOtherCurrentLiabilitiesMember 2021-12-31 0000105016 wso:AccruedExpensesAndOtherCurrentLiabilitiesMember us-gaap:FairValueInputsLevel2Member 2021-12-31 0000105016 us-gaap:FairValueInputsLevel1Member us-gaap:OtherAssetsMember 2021-12-31 0000105016 us-gaap:OtherAssetsMember 2021-12-31 0000105016 wso:GreenbergTraurigMember 2021-12-31 0000105016 us-gaap:FairValueInputsLevel3Member us-gaap:OtherAssetsMember 2021-12-31 0000105016 us-gaap:RetainedEarningsMember 2022-04-01 2022-06-30 0000105016 us-gaap:NoncontrollingInterestMember 2022-04-01 2022-06-30 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-04-01 2022-06-30 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2022-04-01 2022-06-30 0000105016 us-gaap:AdditionalPaidInCapitalMember 2022-04-01 2022-06-30 0000105016 us-gaap:RetainedEarningsMember 2022-01-01 2022-03-31 0000105016 us-gaap:NoncontrollingInterestMember 2022-01-01 2022-03-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-03-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2022-01-01 2022-03-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-03-31 0000105016 us-gaap:RetainedEarningsMember 2021-04-01 2021-06-30 0000105016 us-gaap:NoncontrollingInterestMember 2021-04-01 2021-06-30 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-04-01 2021-06-30 0000105016 us-gaap:AdditionalPaidInCapitalMember 2021-04-01 2021-06-30 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2021-04-01 2021-06-30 0000105016 us-gaap:RetainedEarningsMember 2021-01-01 2021-03-31 0000105016 us-gaap:NoncontrollingInterestMember 2021-01-01 2021-03-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-01-01 2021-03-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-03-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2021-01-01 2021-03-31 0000105016 wso:MakdadIndustrialSupplyCoIncMember 2021-08-20 2021-08-20 0000105016 wso:MakdadIndustrialSupplyCoIncMember us-gaap:CustomerRelationshipsMember 2021-08-20 2021-08-20 0000105016 wso:MakdadIndustrialSupplyCoIncMember 2021-08-20 0000105016 us-gaap:CustomerRelationshipsMember wso:MakdadIndustrialSupplyCoIncMember 2021-08-20 0000105016 wso:MakdadIndustrialSupplyCoIncMember wso:TradeNamesAndDistributionRightsMember 2021-08-20 0000105016 wso:AcmeRefrigerationOfBatonRougeLlcMember 2021-05-07 2021-05-07 0000105016 us-gaap:CustomerRelationshipsMember wso:AcmeRefrigerationOfBatonRougeLlcMember 2021-05-07 2021-05-07 0000105016 wso:AcmeRefrigerationOfBatonRougeLlcMember 2021-05-07 0000105016 wso:AcmeRefrigerationOfBatonRougeLlcMember us-gaap:CustomerRelationshipsMember 2021-05-07 0000105016 wso:TradeNamesAndDistributionRightsMember wso:AcmeRefrigerationOfBatonRougeLlcMember 2021-05-07 0000105016 wso:TecDistributionLlcMember wso:ControllingInterestMember 2021-04-09 2021-04-09 0000105016 wso:CarrierMember wso:TecDistributionLlcMember 2021-04-09 2021-04-09 0000105016 wso:TecDistributionLlcMember 2021-04-09 2021-04-09 0000105016 wso:TecDistributionLlcMember us-gaap:CustomerRelationshipsMember 2021-04-09 2021-04-09 0000105016 wso:TecDistributionLlcMember 2021-04-09 0000105016 wso:TecDistributionLlcMember us-gaap:CustomerRelationshipsMember 2021-04-09 0000105016 wso:TradeNamesAndDistributionRightsMember wso:TecDistributionLlcMember 2021-04-09 0000105016 wso:TecDistributionLlcMember wso:ControllingInterestMember 2021-04-09 0000105016 wso:TecDistributionLlcMember wso:CarrierMember 2021-04-09 0000105016 wso:TemperatureEquipmentCorporationMember 2021-04-09 0000105016 wso:AtmProgramMember 2021-08-06 2021-08-06 0000105016 us-gaap:CommonClassBMember 2022-10-31 0000105016 us-gaap:CommonStockMember 2022-10-31 0000105016 us-gaap:CommonClassBMember us-gaap:SubsequentEventMember us-gaap:RestrictedStockMember wso:AffiliateOfChiefExecutiveOfficerMember 2022-10-15 2022-10-15 0000105016 us-gaap:SubsequentEventMember 2022-10-18 2022-10-18 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2020-12-31 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2020-12-31 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2021-09-30 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2021-09-30 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2021-09-30 0000105016 us-gaap:AdditionalPaidInCapitalMember 2021-09-30 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-09-30 0000105016 us-gaap:RetainedEarningsMember 2021-09-30 0000105016 us-gaap:TreasuryStockMember 2021-09-30 0000105016 us-gaap:NoncontrollingInterestMember 2021-09-30 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2021-12-31 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2021-12-31 0000105016 us-gaap:AccumulatedTranslationAdjustmentMember 2022-09-30 0000105016 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2022-09-30 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2022-09-30 0000105016 us-gaap:AdditionalPaidInCapitalMember 2022-09-30 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-09-30 0000105016 us-gaap:RetainedEarningsMember 2022-09-30 0000105016 us-gaap:TreasuryStockMember 2022-09-30 0000105016 us-gaap:NoncontrollingInterestMember 2022-09-30 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2022-06-30 0000105016 us-gaap:AdditionalPaidInCapitalMember 2022-06-30 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-06-30 0000105016 us-gaap:RetainedEarningsMember 2022-06-30 0000105016 us-gaap:TreasuryStockMember 2022-06-30 0000105016 us-gaap:NoncontrollingInterestMember 2022-06-30 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2021-12-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0000105016 us-gaap:RetainedEarningsMember 2021-12-31 0000105016 us-gaap:TreasuryStockMember 2021-12-31 0000105016 us-gaap:NoncontrollingInterestMember 2021-12-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2022-03-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-03-31 0000105016 us-gaap:RetainedEarningsMember 2022-03-31 0000105016 us-gaap:TreasuryStockMember 2022-03-31 0000105016 us-gaap:NoncontrollingInterestMember 2022-03-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2021-06-30 0000105016 us-gaap:AdditionalPaidInCapitalMember 2021-06-30 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-06-30 0000105016 us-gaap:RetainedEarningsMember 2021-06-30 0000105016 us-gaap:TreasuryStockMember 2021-06-30 0000105016 us-gaap:NoncontrollingInterestMember 2021-06-30 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2020-12-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 0000105016 us-gaap:RetainedEarningsMember 2020-12-31 0000105016 us-gaap:TreasuryStockMember 2020-12-31 0000105016 us-gaap:NoncontrollingInterestMember 2020-12-31 0000105016 wso:CommonStockClassBCommonStockAndPreferredStockMember 2021-03-31 0000105016 us-gaap:AdditionalPaidInCapitalMember 2021-03-31 0000105016 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-03-31 0000105016 us-gaap:RetainedEarningsMember 2021-03-31 0000105016 us-gaap:TreasuryStockMember 2021-03-31 0000105016 us-gaap:NoncontrollingInterestMember 2021-03-31 iso4217:USD xbrli:shares xbrli:pure utr:Month utr:Year iso4217:USD xbrli:shares wso:Location wso:Entity
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2022
or
 
Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From
    
    
    
    
to
    
    
    
    
Commission file number
1-5581
I.R.S. Employer Identification Number
59-0778222
 
 
 
 
WATSCO, INC.
(a Florida Corporation)
 
 
2665 South Bayshore Drive, Suite 901
Miami, Florida 33133
Telephone:
(305714-4100
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common stock, $0.50 par value
  
WSO
  
New York Stock Exchange
Class B common stock, $0.50 par value
  
WSOB
  
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes  ☒    No  ☐
Indicate
 by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  
 
  
Yes  
☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange
Act.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated
filer
     Smaller reporting company  
       
         Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the
Exchange Act).     Yes  ☐    No  
The registrant’s common stock outstanding as of October 31, 2022 comprised (i) 33,263,057
 
s
h
ares of Common stock, $0.50 par value per share, excluding 4,823,988 treasury shares and (ii) 5,473,122
 
shares of Class B common stock, $0.50 par value per share, excluding 48,263 treasury shares.
 
 
 

WATSCO, INC. AND SUBSIDIARIES
 
 
QUARTERLY REPORT ON FORM
10-Q
TABLE OF CONTENTS
 
 
  
Page No.
 
   
  
     
     
Item 1.
 
  
     
     
 
 
  
 
3
 
     
 
 
  
 
4
 
     
 
 
  
 
5
 
     
 
 
  
 
6
 
     
 
 
  
 
8
 
     
 
 
  
 
9
 
     
Item 2.
 
  
 
17
 
     
Item 3.
 
  
 
25
 
     
Item 4.
 
  
 
25
 
   
  
     
     
Item 1.
 
  
 
26
 
     
Item 1A.
 
  
 
26
 
     
Item 6.
 
  
 
26
 
   
  
 
27
 
   
EXHIBITS
  
     
 
 
2 of 27

PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF INCOME
(In thousands, except per share data)
 
 
  
Quarter Ended
September 30,
 
  
Nine Months Ended
September 30,
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
Revenues
 
$
2,035,796
 
   $ 1,782,569     
$
5,693,121
 
   $ 4,768,327  
Cost of sales
 
 
1,484,948
 
     1,299,905     
 
4,096,382
 
     3,512,901  
    
 
 
    
 
 
    
 
 
    
 
 
 
Gross profit
 
 
550,848
 
     482,664     
 
1,596,739
 
     1,255,426  
Selling, general and administrative expenses
 
 
321,522
 
     281,922    
 
919,629
 
     766,231  
Other income
 
 
6,927
 
     6,057      
17,289
 
     16,267  
    
 
 
    
 
 
    
 
 
    
 
 
 
Operating income
 
 
236,253
 
     206,799     
 
694,399
 
     505,462  
Interest expense, net
 
 
483
 
     221     
 
2,151
 
     757  
    
 
 
    
 
 
    
 
 
    
 
 
 
Income before income taxes
 
 
235,770
 
     206,578     
 
692,248
 
     504,705  
Income taxes
 
 
49,600
 
     41,734     
 
145,682
 
     101,601  
    
 
 
    
 
 
    
 
 
    
 
 
 
Net income
 
 
186,170
 
     164,844     
 
546,566
 
     403,104  
Less: net income attributable to
non-controlling
interest
 
 
28,529
 
     23,979     
 
83,070
 
     63,045  
    
 
 
    
 
 
    
 
 
    
 
 
 
Net income attributable to Watsco, Inc.
 
$
157,641
 
  $ 140,865     
$
463,496
 
   $ 340,059  
    
 
 
    
 
 
    
 
 
    
 
 
 
Earnings per share for Common and Class B common stock:
                                  
Basic
 
$
4.04
 
   $ 3.64     
$
11.90
 
   $ 8.80  
    
 
 
    
 
 
    
 
 
    
 
 
 
Diluted
 
$
4.03
 
   $ 3.62     
$
11.86
 
   $ 8.75  
    
 
 
    
 
 
    
 
 
    
 
 
 
See accompanying notes to condensed consolidated unaudited financial statements.
 
3 of 2
7

WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
     Quarter Ended
September 30,
    Nine Months Ended
September 30,
 
     2022     2021     2022     2021  
Net income
  
$
186,170
 
  $ 164,844    
$
546,566
 
  $ 403,104  
Other comprehensive loss, net of tax
                                
Foreign currency translation adjustment
  
 
(19,091
    (8,219  
 
(24,091
    (746
Unrealized gain on cash flow hedging instruments
  
 
  
 
          
 
 
    70  
Reclassification of loss on cash flow hedging instruments into earnings
  
 
  
 
          
 
 
    221  
    
 
 
   
 
 
   
 
 
   
 
 
 
Other comprehensive loss
  
 
(19,091
    (8,219  
 
(24,091
    (455
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive income
  
 
167,079
 
    156,625    
 
522,475
 
    402,649  
Less: comprehensive income attributable to
non-controlling
interest
  
 
22,040
 
    21,114    
 
74,911
 
    62,821  
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive income attributable to Watsco, Inc.
  
$
145,039
 
  $ 135,511    
$
447,564
 
  $ 339,828  
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to condensed consolidated unaudited financial statements.
 
4 of 2
7

WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
(In thousands, except per share data)
 
 
  
September 30,
2022
 
 
December 31,
2021
 
ASSETS
    
 
         
Current assets:
    
 
         
Cash and cash equivalents
  
$
130,228
 
  $ 118,268  
Accounts receivable, net
  
 
859,581
 
    698,456  
Inventories, net
  
 
1,385,191
 
    1,115,469  
Other current assets
  
 
34,876
 
    29,207  
    
 
 
   
 
 
 
Total current assets
  
 
2,409,876
 
    1,961,400  
Property and equipment, net
  
 
121,678
 
    111,019  
Operating lease
right-of-use
assets
  
 
312,397
 
    268,528  
Goodwill
  
 
430,231
 
    434,019  
Intangible assets, net
  
 
174,978
 
    186,896  
Investment in unconsolidated entity
  
 
127,420
 
    114,808  
Other assets
  
 
8,007
 
    9,191  
    
 
 
   
 
 
 
    
$
3,584,587
 
  $ 3,085,861  
    
 
 
   
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
    
 
         
Current liabilities:
    
 
         
Current portion of long-term obligations
  
$
89,238
 
  $ 84,501  
Accounts payable
  
 
474,268
 
    364,185  
Accrued expenses and other current liabilities
  
 
376,016
 
    278,036  
    
 
 
   
 
 
 
Total current liabilities
  
 
939,522
 
    726,722  
    
 
 
   
 
 
 
Long-term obligations:
    
 
         
Borrowings under revolving credit agreement
  
 
8,800
 
    89,000  
Operating lease liabilities, net of current portion
  
 
227,564
 
    187,024  
Finance lease liabilities, net of current portion
  
 
10,764
 
    9,189  
    
 
 
   
 
 
 
Total long-term obligations
  
 
247,128
 
    285,213  
    
 
 
   
 
 
 
Deferred income taxes and other liabilities
  
 
81,784
 
    76,511  
    
 
 
   
 
 
 
Commitments and contingencies
    
 
         
Watsco, Inc. shareholders’ equity:
    
 
         
Common stock, $0.50 par value
  
 
19,039
 
    18,941  
Class B common stock, $0.50 par value
  
 
2,917
 
    2,895  
Preferred stock, $0.50 par value
  
 
  
 
        
Paid-in
capital
  
 
1,047,317
 
    1,003,932  
Accumulated other comprehensive loss, net of tax
  
 
(50,108
    (34,176
Retained earnings
  
 
977,050
 
    760,796  
Treasury stock, at cost
  
 
(87,440
    (87,440
    
 
 
   
 
 
 
Total Watsco, Inc. shareholders’ equity
  
 
1,908,775
 
    1,664,948  
Non-controlling
interest
  
 
407,378
 
    332,467  
    
 
 
   
 
 
 
Total shareholders’ equity
  
 
2,316,153
 
    1,997,415  
    
 
 
   
 
 
 
    
$
3,584,587
 
  $ 3,085,861  
    
 
 
   
 
 
 
See accompanying notes to condensed consolidated unaudited financial statements.
 
5 of 2
7

WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
(In thousands, except
share and per share data)
 
Common Stock,
Class B
Common Stock
and Preferred
Stock Shares
 
 
Common Stock,
Class B
Common Stock
and Preferred
Stock Amount
 
 
Paid-In

Capital
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Retained
Earnings
 
 
Treasury
Stock
 
 
Non-controlling

Interest
 
 
Total
 
Balance at December 31, 2021
 
 
38,799,632
 
 
$
21,836
 
 
$
1,003,932
 
 
$
(34,176
 
$
760,796
 
 
$
(87,440
 
$
332,467
 
 
$
1,997,415
 
Net income
                                    113,298               21,592       134,890  
Other comprehensive income
                            2,935                       1,446       4,381  
Issuances of
non-vested
restricted
shares of common stock
    105,882       53       (53                                     —    
Common stock contribution to 401(k)
plan
    21,532       11       6,726                                       6,737  
Stock issuances from exercise of
stock options and employee stock
purchase plan
    24,850       12       4,408                                       4,420  
Share-based compensation
                    8,667                                       8,667  
Cash dividends declared and paid on
Common and Class B common
stock, $1.95 per share
                                    (75,795                     (75,795
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2022
 
 
38,951,896
 
 
 
21,912
 
 
 
1,023,680
 
 
 
(31,241
 
 
798,299
 
 
 
(87,440
 
 
355,505
 
 
 
2,080,715
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income
                                    192,557               32,949       225,506  
Other comprehensive (loss)
                            (6,265                     (3,116     (9,381
Issuances of
non-vested
restricted
shares of common stock
    21,177       11       (11                                     —    
Forfeitures of
non-vested
restricted
shares of common stock
    (10,000     (5     5                                       —    
Common stock contribution to 401(k) plan
    28                9                                       9  
Stock issuances from exercise of
stock options and employee stock
purchase plan
    21,939       11       3,796                                       3,807  
Retirement of common stock
    (8,181     (4     (2,175                                     (2,179
Share-based compensation
                    6,987                                       6,987  
Cash dividends declared and paid on
Common and Class B common
stock, $2.20 per share
                                    (85,689                     (85,689
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2022
 
 
38,976,859
 
 
 
21,925
 
 
 
1,032,291
 
 
 
(37,506
 
 
905,167
 
 
 
(87,440
 
 
385,338
 
 
 
2,219,775
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income
                                    157,641               28,529       186,170  
Other comprehensive (loss)
                            (12,602                     (6,489     (19,091
Issuances of
non-vested
restricted
shares of common stock
    13,000       7       (7                                     —    
Stock issuances from exercise of
stock options and employee stock
purchase plan
    51,407       25       8,639                                       8,664  
Retirement of common stock
    (1,932     (1     (548                                     (549
Share-based compensation
                    6,942                                       6,942  
Cash dividends declared and paid on
Common and Class B common
stock, $2.20 per share
                                    (85,758                     (85,758
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2022
 
 
39,039,334
 
 
$
21,956
 
 
$
1,047,317
 
 
$
(50,108
 
$
977,050
 
 
$
(87,440
 
$
407,378
 
 
$
2,316,153
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Continued on next page.
 
6 of 2
7

(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, 2020
 
 
38,521,694
 
 
$
21,697
 
 
$
950,915
 
 
$
(34,867
 
$
636,373
 
 
$
(87,440
 
$
293,083
 
 
$
1,779,761
 
Net income
                                    55,092               11,035       66,127  
Other comprehensive income
                            2,474                       1,302       3,776  
Issuances of non-vested restricted
shares of common stoc
k

    121,934       61       (61                                      
Forfeitures of
non-vested
restricted
shares of common stock
    (43,000     (21     21                                        
Common stock contribution to 401(k)
plan
    22,752       11       5,143                                       5,154  
Stock issuances from exercise of stock options and employee stock purchase plan
    24,735       12       3,862                                       3,874  
Share-based compensation
                    6,656                                       6,656  
Cash dividends declared and paid on
Common and Class B common
stock, $1.775 per share
                                    (68,521                     (68,521
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2021
 
 
38,648,115
 
 
 
21,760
 
 
 
966,536
 
 
 
(32,393
 
 
622,944
 
 
 
(87,440
 
 
305,420
 
 
 
1,796,827
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income
                                    144,102               28,031       172,133  
Other comprehensive income
                            2,649                       1,339       3,988  
Issuances of
non-vested
restricted
shares of common stock
    44,881       22       (22                                      
Forfeitures of
non-vested
restricted
shares of common stock
    (7,589     (4     4                                        
Stock issuances from exercise of
 
stock
options and employee stock purchase
plan
    34,311       18       5,658                                       5,676  
Retirement of common stock
    (2,965     (1     (862                                     (863
Share-based compensation
                    5,569                                       5,569  
Common stock issued for Acme
Refrigeration of Baton Rouge LLC
    8,492       4       2,547                                       2,551  
Investment in TEC Distribution LLC
                                                    21,040       21,040  
Cash dividends declared and paid on
Common and Class B common
stock, $1.95 per share
                                    (75,388                     (75,388
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2021
 
 
38,725,245
 
 
 
21,799
 
 
 
979,430
 
 
 
(29,744
 
 
691,658
 
 
 
(87,440
 
 
355,830
 
 
 
1,931,533
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income
                                    140,865               23,979       164,844  
Other comprehensive (loss)
                            (5,354                     (2,865     (8,219
Issuances of
non-vested
restricted
shares of common stock
    21,828       11       (11                                     —    
Stock issuances from exercise of stock
options and employee stock purchase
plan
    14,413       7       2,480                                       2,487  
Retirement of common stock
    (3,250     (2     (892                                     (894
Share-based compensation
                    6,308                                       6,308  
Common stock issued for Makdad
Industrial Supply Co., Inc.
    3,627       2       995                                       997  
Cash dividends declared and paid on
Common and Class B common
stock, $1.95 per share
                                    (75,531                     (75,531
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2021
 
 
38,761,863
 
 
$
21,817
 
 
$
988,310
 
 
$
(35,098
 
$
756,992
 
 
$
(87,440
 
$
376,944
 
 
$
2,021,525
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to condensed consolidated unaudited financial statements.
 
7 of 2
7

WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
  
Nine Months Ended
September 30,
 
 
  
2022
 
 
2021
 
Cash flows from operating activities:
                
Net income
  
$
546,566
 
  $ 403,104  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
  
 
23,440
 
    20,874  
Share-based compensation
  
 
22,017
 
    18,659  
Non-cash
contribution to 401(k) plan
  
 
6,746
 
    5,154  
Deferred income tax provision
  
 
6,311
 
    3,966  
Other income from investment in unconsolidated entity
  
 
(17,289
    (16,267
Other, net
  
 
5,672
 
    1,969  
Changes in operating assets and liabilities, net of effects of acquisitions:
                
Accounts receivable, net
  
 
(170,746
    (198,011
Inventories, net
  
 
(276,653
    (170,662
Accounts payable and other liabilities
  
 
212,829
 
    263,752  
Other, net
  
 
(13
    (12,866
    
 
 
   
 
 
 
Net cash provided by operating activities
  
 
358,880
 
    319,672  
    
 
 
   
 
 
 
Cash flows from investing activities:
                
Capital expenditures
  
 
(26,526
    (16,770
Business acquisitions, net of cash acquired
  
 
(47
    (129,462
Proceeds from sale of equity securities
  
 
 
    5,993  
Proceeds from sale of property and equipment
  
 
167
 
    108  
    
 
 
   
 
 
 
Net cash used in investing activities
  
 
(26,406
    (140,131
    
 
 
   
 
 
 
Cash flows from financing activities:
                
Dividends on Common and Class B common stock
  
 
(247,242
    (219,440
Net (repayments) proceeds under revolving credit agreement
  
 
(80,200
    1,724  
Repurchases of common stock to satisfy employee withholding tax obligations
  
 
(2,471
    (894
Net repayments of finance lease liabilities
  
 
(2,206
    (1,482
Payment of fees related to revolving credit agreement
  
 
 
    (22 )
Proceeds from
non-controlling
interest for investment in TEC Distribution LLC
  
 
 
    21,040  
Net proceeds from issuances of common stoc
k

  
 
16,635
 
    11,173  
    
 
 
   
 
 
 
Net cash used in financing activities
  
 
(315,484
    (187,901
    
 
 
   
 
 
 
Effect of foreign exchange rate changes on cash and cash equivalents
  
 
(5,030
    (506
    
 
 
   
 
 
 
Net increase (decrease) in cash and cash equivalents
  
 
11,960
 
    (8,866
Cash and cash equivalents at beginning of period
  
 
118,268
 
    146,067  
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
  
$
130,228
 
  $ 137,201  
    
 
 
   
 
 
 
Supplemental cash flow information:
                
Common stock issued for Acme Refrigeration of Baton Rouge LLC
  
 
—  
 
 
$
2,551
 
Common stock issued for Makdad Industrial Supply Co., Inc.
  
 
—  
 
 
$
997
 
See accompanying notes to condensed consolidated unaudited financial statements.
 
8 of 2
7

WATSCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
September 30, 2022
(In thousands, except share and per share data)
 
1.
BASIS OF PRESENTATION
Basis of Consolidation
Watsco, Inc. (collectively with its subsidiaries, “Watsco,” “we,” “us,” or “our”) was incorporated in Florida in 1956 and is the largest distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America. The accompanying September 30, 2022 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 2021 Annual Report on Form
10-K.
The condensed consolidated unaudited financial statements include the accounts of Watsco, all of its wholly owned subsidiaries, the accounts of four joint ventures with Carrier Global Corporation, which we refer to as Carrier, the accounts of Carrier InterAmerica Corporation, of which we have an 80% controlling interest, and Carrier has a 20%
non-controlling
interest, and our 38.1% investment in Russell Sigler, Inc., which is accounted for under the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.
The results of operations for the quarter and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022. Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal. Furthermore, profitability can be impacted favorably or unfavorably based on weather patterns, particularly during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is usually highest in the first and fourth quarters. Demand related to the new construction sectors throughout most of the markets we serve tends to be fairly evenly distributed throughout the year and depends largely on housing completions and related weather and economic conditions.
Equity Method Investments
Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in investment in unconsolidated entity in our condensed consolidated unaudited balance sheets. Under this method of accounting, our proportionate share of the net income or loss of the investee is included in other income in our condensed consolidated unaudited statements of income. The excess, if any, of the carrying amount of our investment over our ownership percentage in the underlying net assets of the investee is attributed to certain fair value adjustments with the remaining portion recognized as goodwill.
Use of Estimates
The preparation of condensed consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amounts of revenues and expenses for the reporting period. Significant estimates include valuation reserves for accounts receivable, net realizable value adjustments to inventories, income taxes, reserves related to loss contingencies and the valuation of goodwill, indefinite-lived intangible assets and long-lived assets. While we believe that these estimates are reasonable, actual results could differ from such estimates.
Impact of the
COVID-19
Pandemic and Economic and Marketplace Dynamics
Since
COVID-19
was declared a pandemic in March 2020, it has had widespread impacts on global financial markets and business practices. Although we learned to navigate
COVID-19
while maintaining our operations in all material respects, the pandemic impacted our operations, and the operations of our customers and suppliers, throughout 2020 and into 2021. However, as the effects of the pandemic have continued to lessen, the impact of the pandemic on our business has been more reflective of greater economic and marketplace dynamics, which include inflation, supply chain disruptions, and labor shortages, rather than pandemic-related issues, such as quarantines, location closures, mandated restrictions, employee illnesses, and travel restrictions. The extent to which these macro-economic and marketplace dynamics impact our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, therefore, we cannot reasonably estimate the future impact of such dynamics at this time.
 
9 of 2
7

2.
REVENUES
Disaggregation of Revenues
The following table presents our revenues disaggregated by primary geographical regions and major product lines within our single reporting segment:
 
 
  
Quarter Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
  
2022
 
 
2021
 
 
2022
 
 
2021
 
Primary Geographical Regions:
                                
United States
  
$
1,851,071
 
  $ 1,615,319    
$
5,156,846
 
  $ 4,291,838  
Canada
  
 
100,567
 
    102,491    
 
303,149
 
    290,863  
Latin America and the Caribbean
  
 
84,158
 
    64,759    
 
233,126
 
    185,626  
    
 
 
   
 
 
   
 
 
   
 
 
 
    
$
2,035,796
 
  $ 1,782,569    
$
5,693,121
 
  $ 4,768,327  
    
 
 
   
 
 
   
 
 
   
 
 
 
Major Product Lines:
                                
HVAC equipment
  
 
69
    69  
 
69
    69
Other HVAC products
  
 
27
    27  
 
27
    27
Commercial refrigeration products
  
 
4
    4  
 
4
    4
    
 
 
   
 
 
   
 
 
   
 
 
 
    
 
100
    100  
 
100
    100
    
 
 
   
 
 
   
 
 
   
 
 
 
 
10 of 2
7

3.
EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per share for our Common and Class B common stock:
 
 
  
Quarter Ended
September 30,
 
  
Nine Months Ended
September 30,
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
Basic Earnings per Share:
  
  
  
  
Net income attributable to Watsco, Inc. shareholders
  
$
157,641
 
   $ 140,865     
$
463,496
 
   $ 340,059  
Less: distributed and undistributed earnings allocated to
non-vested
restricted common stock
  
 
14,387
 
     12,590     
 
42,293
 
     30,182  
    
 
 
    
 
 
    
 
 
    
 
 
 
Earnings allocated to Watsco, Inc. shareholders
  
$
143,254
 
   $ 128,275     
$
421,203
 
   $ 309,877  
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Weighted-average common shares outstanding - Basic
  
 
35,450,277
 
     35,260,126     
 
35,401,179
 
     35,222,865  
Basic earnings per share for Common and Class B common stock
  
$
4.04
 
   $ 3.64     
$
11.90
 
   $ 8.80  
Allocation of earnings for Basic:
                                   
Common stock
  
$
132,846
 
   $ 118,905     
$
390,557
 
   $ 287,217  
Class B common stock
  
 
10,408
 
     9,370     
 
30,646
 
     22,660  
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
143,254
 
   $ 128,275     
$
421,203
 
   $ 309,877  
    
 
 
    
 
 
    
 
 
    
 
 
 
Diluted Earnings per Share:
                                   
Net income attributable to Watsco, Inc. shareholders
  
$
157,641
 
   $ 140,865     
$
463,496
 
   $ 340,059  
Less: distributed and undistributed earnings allocated to
non-vested
restricted common stock
  
 
14,368
 
     12,563     
 
42,228
 
     30,132  
    
 
 
    
 
 
    
 
 
    
 
 
 
Earnings allocated to Watsco, Inc. shareholders
  
$
143,273
 
   $ 128,302     
$
421,268
 
   $ 309,927  
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Weighted-average common shares outstanding - Basic
  
 
35,450,277
 
     35,260,126     
 
35,401,179
 
  
 
35,222,865
 
Effect of dilutive stock options
  
 
112,008
 
     181,852     
 
128,309
 
  
 
177,389
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Weighted-average common shares outstanding - Diluted
  
 
35,562,285
 
     35,441,978     
 
35,529,488
 
  
 
35,400,254
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Diluted earnings per share for Common and Class B common stock
  
$
4.03
 
   $ 3.62     
$
11.86
 
  
$
8.75
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Anti-dilutive stock options not included above
  
 
208,610
 
     63,959     
 
181,115
 
  
 
27,513
 
Diluted earnings per share for our Common stock assumes the conversion of all of our Class B common stock into Common stock as of the beginning of the fiscal year; therefore, no allocation of earnings to Class B common stock is required. At September 30, 2022 and 2021, our outstanding Class B common stock was convertible into 2,575,725 and 2,575,698 shares of our Common stock, respectively.
 
11 of 2
7

4.
OTHER COMPREHENSIVE LOSS
Other comprehensive
loss 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 on cash flow hedging instruments. The tax effects allocated to each component of other comprehensive loss were as follows:
 
 
 
  
Quarter Ended
September 30,
 
  
Nine Months Ended
September 30,
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
Foreign currency translation adjustment
  
$
(19,091
  $ (8,219  
$
(24,091
  $ (746
Unrealized gain on cash flow hedging instruments
                    
 
 
    97  
Income tax expense
                    
 
 
    (27
    
 
 
   
 
 
   
 
 
   
 
 
 
Unrealized gain on cash flow hedging instruments, net of tax
                    
 
 
    70  
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Reclassification of loss on cash flow hedging instruments into earnings
                    
 
 
    305  
Income tax benefit
                    
 
 
    (84
    
 
 
   
 
 
   
 
 
   
 
 
 
Reclassification of loss on cash flow hedging instruments into earnings, net of
tax
                    
 
 
    221  
    
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
  
$
(19,091
  $ (8,219  
$
(24,091
  $ (455
    
 
 
   
 
 
   
 
 
   
 
 
 
The changes in each component of accumulated other comprehensive loss, net of tax, were a
s
follows:
 
Nine Months Ended September
 30,
  
2022
 
  
2021
 
Foreign currency translation adjustment:
  
  
Beginning balance
  
$
(34,176
)
   $ (34,694 )
Current period other comprehensive loss
  
 
(15,932
     (406
    
 
 
    
 
 
 
Ending balance
  
 
(50,108
     (35,100
    
 
 
    
 
 
 
Cash flow hedging instruments:
                 
Beginning balance
  
 
 
     (173
Current period other comprehensive income
  
 
       43  
Reclassification adjustment
  
 
       132  
    
 
 
    
 
 
 
Ending balance
  
 
       2  
    
 
 
    
 
 
 
Accumulated other comprehensive loss, net of tax
  
$
(50,108
   $ (35,098
    
 
 
    
 
 
 
 
5.
ACQUISITIONS
Makdad Industrial Supply Co., Inc.
On August 20, 2021, one of our wholly owned subsidiaries acquired Makdad Industrial Supply Co., Inc., a distributor of air conditioning and heating products operating from
six
locations in Pennsylvania. Consideration for the purchase consisted of $3,164 in cash and the issuance of 3,627 shares of Common stock having a fair value of $997, net of cash acquired of $204. The purchase price resulted in the recognition of $1,041 in goodwill and intangibles. The fair value of the identified intangible assets was $596 and consisted of $423 in trade names and distribution rights, and $173 in customer relationships to be amortized over an
18-year
period. The tax basis of such goodwill is deductible for income tax purposes over 15 years.
Acme Refrigeration of Baton Rouge LLC
On May 7, 2021, we acquired certain assets and assumed certain liabilities of Acme Refrigeration of Baton Rouge LLC, a distributor of air conditioning, heating, and refrigeration products, operating from 18 locations in Louisiana and Mississippi, for $22,855 less certain average revolving indebtedness. We formed a new, wholly owned subsidiary, Acme Refrigeration LLC, which operates this business. Consideration for the purchase consisted of $18,051 in cash, 8,492 shares of Common stock having a fair value of $2,551, and $3,141 for repayment of indebtedness, net of cash acquired of $1,340. The purchase price resulted in the recognition of $3,710 in goodwill and intangibles. The fair value of the identified intangible assets was $2,124 and consisted of $1,508 in trade names and distribution rights, and $616 in customer relationships to be amortized over an
18-year
period. The tax basis of such goodwill is deductible for income tax purposes over 15 years.
 
12 of 2
7

Temperature Equipment Corporation
On April 9, 2021, we acquired certain assets and assumed certain liabilities comprising the HVAC distribution business of Temperature Equipment Corporation, an HVAC distributor operating from 32 locations in Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri and Wisconsin. We formed a new, stand-alone joint venture with Carrier, TEC Distribution LLC (“TEC”), that operates this business. We have an 80% controlling interest in TEC, and Carrier has a 20%
non-controlling
interest. Consideration for the purchase was paid in cash, consisting of $105,200 paid to Temperature Equipment Corporation (Carrier contributed $21,040 and we contributed $84,160) and $1,497 for repayment of indebtedness.
The purchase price resulted in the recognition of $38,624 in goodwill and intangibles. The fair value of the identified intangible assets was $19,900 and consisted of $15,700 in trade names and distribution rights, and $4,200 in customer relationships to be amortized over an
18-year
period. The tax basis of such goodwill is deductible for income tax purposes over 15 years.
The table below presents the allocation of the total consideration to tangible and intangible assets acquired and liabilities assumed from the acquisition of our 80% controlling interest in TEC based on their respective fair values as of April 9, 2021:
 
Accounts receivable
   $ 33,315  
Inventories
     71,325  
Other current assets
     962  
Property and equipment
     2,590  
Operating lease ROU assets
     53,829  
Goodwill
     18,724  
Intangibles
     19,900  
Accounts payable
     (25,393
Accrued expenses and other current liabilities
     (20,509
Operating lease liabilities, net of current portion
     (48,046
    
 
 
 
Total
   $ 106,697  
    
 
 
 
The results of operations of these acquisitions have been included in the consolidated financial statements from their respective dates of acquisition. The pro forma effect of these acquisitions was not deemed significant to the consolidated financial statements.
 
6.
DERIVATIVES
We enter into foreign currency forward and option contracts intended 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. At September 30, 2022, no foreign currency forward contracts were designated as cash flow hedges.
The impact from foreign exchange derivative instruments designated as cash flow hedges was as
follows:
 
 
  
Quarter Ended
September 30,
 
  
Nine Months Ended
September 30,
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
G
ain recorded in accumulated other comprehensive loss
   $         $        
$
 
   $ 97  
L
oss reclassified from accumulated other comprehensive loss into earnings
   $         $        
$
 
   $ 305  
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 of 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. We had only one foreign currency exchange contract not designated as a hedging
instrument
at September 30, 2022, the total notional value of which was $7,500, and such contract subsequently expired in October 2022.
 
13 of 2
7

We recognized (losses)
gains
 
of $(149) and $83 from foreign currency forward and option contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the quarters ended September 30, 2022 and 2021, respectively. We recognized losses
 
of $524 and $101 from foreign currency forward and option contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the nine months ended September 30, 2022 and 2021, respectively.
The following table summarizes the fair value of derivative instruments, which consist solely of foreign exchange contracts, included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets. Se
e
Note
7.

 
  
Asset Derivatives
 
  
Liability Derivatives
 
 
  
September 30, 2022
 
  
December 31, 2021
 
  
September 30, 2022
 
  
December 31, 2021
 
                                 
                                 
Derivatives designated as
hedging instruments
   $         $         $         $     
Derivatives not designated as hedging instruments
                      
 
13
 
     5  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total derivative instruments
   $         $        
$
13
 
   $ 5  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
7.
FAIR VALUE MEASUREMENTS
The following tables present our assets and liabilities carried at fair value that are measured on a recurring
basis:
 
 
  
 
  
Total
 
  
Fair Value Measurements
at September 30, 2022 Using
 
  
Balance Sheet Location
  
Level 1
 
  
Level 2
 
  
Level 3
 
Assets:
  
 
  
     
  
     
  
     
  
     
Equity securities
   Other assets   
$
596
 
  
$
596
 
    
—  
      
—  
 
Private equities
   Other assets   
$
1,000
 
  
 
—  
 
  
 
—  
 
  
$
1,000
 
Liabilities:
                                        
Derivative financial instruments
   Accrued expenses and other current liabilities   
$
13
 
    
—  
    
$
13
 
    
—  
 
 

 
  
 
  
Total
 
  
Fair Value Measurements
at December 31, 2021 Using
 
  
Balance Sheet Location
  
Level 1
 
  
Level 2
 
  
Level 3
 
Assets:
                                        
Equity securities
   Other assets    $ 1,790      $ 1,790        —          —    
Private equities
   Other assets    $ 1,000        —          —        $ 1,000  
Liabilities:
                                        
Derivative financial instruments
   Accrued expenses and other current liabilities    $ 5        —        $ 5        —