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 June 30, 2023
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(305 ) 714-4100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| |
||||
| |
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 Yes ☒ No ☐
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). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act. | ☒ | 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
No 12b-2
of the Exchange Act). Yes ☐The registrant’s common stock outstanding as of August 1, 2023 comprised (i) 33,537,550 shares of Common stock, $0.50 par value per share, excluding 4,778,988 treasury shares and (ii) 5,529,187 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
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Item 1. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 5. |
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Item 6. |
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EXHIBITS |
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2
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 June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues |
$ |
$ | $ |
$ | ||||||||||||
| Cost of sales |
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| Gross profit |
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| Selling, general and administrative expenses |
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| Other income |
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| Operating income |
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| Interest expense, net |
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| Income before income taxes |
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| Income taxes |
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| Net income |
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| Less: net income attributable to non-controlling interest |
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| Net income attributable to Watsco, Inc. |
$ |
$ | $ |
$ | ||||||||||||
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| Earnings per share for Common and Class B common stock: |
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| Basic |
$ |
$ | $ |
$ | ||||||||||||
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| Diluted |
$ |
$ | $ |
$ | ||||||||||||
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See accompanying notes to condensed consolidated unaudited financial statements.
3
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| Quarter Ended June 30, |
Six Months Ended June 30, |
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| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income |
$ |
$ | $ |
$ | ||||||||||||
| Other comprehensive income (loss), net of tax Foreign currency translation adjustment |
( |
) | ( |
) | ||||||||||||
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| Other comprehensive income (loss) |
( |
) | ( |
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| Comprehensive income |
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| Less: comprehensive income attributable to non-controlling interest |
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| Comprehensive income attributable to Watsco, Inc. |
$ |
$ | $ |
$ | ||||||||||||
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See accompanying notes to condensed consolidated unaudited financial statements.
4
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
(In thousands, except per share data)
| June 30, 2023 |
December 31, 2022 |
|||||||
| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ |
$ | ||||||
| Accounts receivable, net |
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| Inventories, net |
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| Other current assets |
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| Total current assets |
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| Property and equipment, net |
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| Operating lease right-of-use |
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| Goodwill |
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| Intangible assets, net |
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| Investment in unconsolidated entity |
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| Other assets |
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$ |
$ | |||||||
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| LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| Current liabilities: |
||||||||
| Current portion of long-term obligations |
$ |
$ | ||||||
| Borrowings under revolving credit agreement |
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| Accounts payable |
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| Accrued expenses and other current liabilities |
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| Total current liabilities |
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| Long-term obligations: |
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| Borrowings under revolving credit agreement |
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| Operating lease liabilities, net of current portion |
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| Finance lease liabilities, net of current portion |
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| Total long-term obligations |
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| Deferred income taxes and other liabilities |
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| Commitments and contingencies |
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| Watsco, Inc. shareholders’ equity: |
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| Common stock, $ |
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| Class B common stock, $ |
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| Preferred stock, $ |
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| Paid-in capital |
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| Accumulated other comprehensive loss, net of tax |
( |
) |
( |
) | ||||
| Retained earnings |
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| Treasury stock, at cost |
( |
) |
( |
) | ||||
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| Total Watsco, Inc. shareholders’ equity |
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| Non-controlling interest |
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| Total shareholders’ equity |
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$ |
$ | |||||||
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See accompanying notes to condensed consolidated unaudited financial statements.
5
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, 2022 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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| Net income |
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| Other comprehensive income |
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| Issuances of restricted shares of common stock |
( |
) |
— |
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| Forfeitures of restricted shares of common stock |
( |
) |
( |
) |
— |
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| Common stock contribution to 401(k) plan |
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| Stock issuances from exercise of stock options and employee stock purchase plan |
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| Issuance of Class B common stock |
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| Retirement of common stock |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
| Share-based compensation |
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| Cash dividends declared and paid on Common and Class B common stock, $ per share |
( |
) |
( |
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| Balance at March 31, 2023 |
( |
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( |
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| Net income |
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| Other comprehensive income |
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| Issuances of restricted shares of common stock |
( |
) |
— |
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| Forfeitures of restricted shares of common stock |
( |
) |
— |
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| Stock issuances from exercise of stock options and employee stock purchase plan |
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| Retirement of common stock |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
| Share-based compensation |
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| Net proceeds from the sale of Common stock |
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| Cash dividends declared and paid on Common and Class B common stock, $ per share |
( |
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( |
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| Balance at June 30, 2023 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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Continued on next page.
6
(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 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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| Net income |
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| Other comprehensive income |
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| Issuances of restricted shares of common stock |
( |
) |
— |
|||||||||||||||||||||||||||||
| Common stock contribution to 401(k) plan |
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| Stock issuances from exercise of stock options and employee stock purchase plan |
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| Share-based compensation |
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| Cash dividends declared and paid on Common and Class B common stock, $ per share |
( |
) |
( |
) | ||||||||||||||||||||||||||||
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| Balance at March 31, 2022 |
( |
) |
( |
) |
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| Net income |
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| Other comprehensive (loss) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||
| Issuances of restricted shares of common stock |
( |
) |
— |
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| Forfeitures of restricted shares of common stock |
( |
) |
( |
) |
— |
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| Common stock contribution to 401(k) plan |
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| Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
| Retirement of common stock |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
| Share-based compensation |
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| Cash dividends declared and paid on Common and Class B common stock, $ per share |
( |
) |
( |
) | ||||||||||||||||||||||||||||
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| Balance at June 30, 2022 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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See accompanying notes to condensed consolidated unaudited financial statements.
7
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(In thousands)
| Six Months Ended June 30, |
||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: |
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| Net income |
$ |
$ |
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| Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
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| Depreciation and amortization |
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| Share-based compensation |
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| Provision for doubtful accounts |
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| Deferred income tax provision |
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| Other income from investment in unconsolidated entity |
( |
) |
( |
) | ||||
| Other, net |
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| Changes in operating assets and liabilities, net of effects of acquisitions: |
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| Accounts receivable, net |
( |
) |
( |
) | ||||
| Inventories, net |
( |
) |
( |
) | ||||
| Accounts payable and other liabilities |
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| Other, net |
( |
) |
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| Net cash (used in) provided by operating activities |
( |
) |
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| Cash flows from investing activities: |
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| Capital expenditures |
( |
) |
( |
) | ||||
| Business acquisitions, net of cash acquired |
( |
) |
( |
) | ||||
| Proceeds from sale of property and equipment |
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| Net cash used in investing activities |
( |
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( |
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| Cash flows from financing activities: |
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| Net proceeds under current revolving credit agreement |
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| Net proceeds from the sale of Common stock |
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| Net proceeds from issuances of Common stock under employee-related plans |
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| Payment of fees related to revolving credit agreement |
( |
) |
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| Net repayments of finance lease liabilities |
( |
) |
( |
) | ||||
| Repurchases of common stock to satisfy employee withholding tax obligations |
( |
) |
( |
) | ||||
| Net (repayments) proceeds under prior revolving credit agreement |
( |
) |
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| Dividends on Common and Class B common stock |
( |
) |
( |
) | ||||
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| Net cash provided by (used in) financing activities |
( |
) | ||||||
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| Effect of foreign exchange rate changes on cash and cash equivalents |
( |
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| Net increase in cash and cash equivalents |
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period |
$ |
$ |
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See accompanying notes to condensed consolidated unaudited financial statements.
8
WATSCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
June 30, 2023
(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 June 30, 2023 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 2022 Annual Report on Form
10-K.
The condensed consolidated unaudited financial statements include the accounts of Watsco, all of its wholly owned subsidiaries, the accounts of four
joint ventures with Carrier Global Corporation, which we refer to as Carrier, in which we have a controlling interest, the accounts of Carrier InterAmerica Corporation, in 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 six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023. 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.
9
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 June 30, |
Six Months Ended June 30, |
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| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Primary Geographical Regions: |
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United States |
$ |
$ | $ |
$ | ||||||||||||
Canada |
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Latin America and the Caribbean |
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$ |
$ | $ |
$ | |||||||||||||
Major Product Lines: |
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HVAC equipment |
% |
% | % |
% | ||||||||||||
Other HVAC products |
% |
% | % |
% | ||||||||||||
Commercial refrigeration products |
% |
% | % |
% | ||||||||||||
% |
% | % |
% | |||||||||||||
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 June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Basic Earnings per Share: |
||||||||||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | $ |
$ | ||||||||||||
Less: distributed and undistributed earnings allocated to 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 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 |
$ |
$ | $ |
$ | ||||||||||||
Anti-dilutive stock options not included above |
||||||||||||||||
10
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 June 30, 2023 and 2022, our outstanding Class B common stock was convertible into 3,232,419 and 2,575,604 shares of our Common stock, respectively.
4. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) consists of the foreign currency translation adjustment associated with our Canadian operations’ use of the Canadian dollar as their functional currency.
The change in accumulated other comprehensive loss, net of tax, was as follows:
Six Months Ended June 30, |
2023 | 2022 | ||||||
Foreign currency translation adjustment: |
||||||||
Beginning balance |
$ |
( |
) |
$ | ( |
) | ||
Current period other comprehensive income (loss) |
( |
) | ||||||
Ending balance |
$ |
( |
) |
$ |
( |
) | ||
5. ACQUISITION
Capitol District Supply Co., Inc.
On March 3, 2023, one of our wholly owned subsidiaries acquired Capitol District Supply Co., Inc., a distributor of air conditioning and heating products with annual sales of approximately $13,000 , operating from three locations in New York. Consideration for the purchase consisted of $1,282 in cash, net of cash acquired of $144 , and $1,851 for repayment of indebtedness.
The results of operations of this acquisition have been included in the condensed consolidated unaudited financial statements from its date of acquisition. The pro forma effect of this acquisition was not deemed significant to the condensed consolidated unaudited financial statements.
6. DEBT
On March 16, 2023, we entered into an unsecured, five-year $600,000 syndicated multicurrency revolving credit agreement, which replaced in its entirety our prior five-year $560,000 unsecured revolving credit agreement that was nearing maturity. Proceeds from the new facility were used to repay the $235,500 outstanding under the prior facility. Additional proceeds may be used for, among other things, funding seasonal working capital needs and other general corporate purposes, including acquisitions, dividends (if and as declared by our Board of Directors), capital expenditures, stock repurchases, and issuances of letters of credit. The revolving credit facility has a seasonal component from October 1 to March 31, during which the borrowing capacity may be reduced to $500,000 at our discretion (which effectively reduces fees payable in respect of the unused portion of the commitment). Included in the revolving credit facility are a $125,000 swingline loan sublimit, a $10,000 letter of credit sublimit, a $75,000 alternative currency borrowing sublimit, and an $10,000 Mexican borrowing subfacility. The credit agreement matures on March 16, 2028 .
Borrowings under the revolving credit facility bear interest at either Term Secured Overnight Financing Rate (“SOFR”) or Daily Simple SOFR-based rates plus 0.10 100.0 137.5 100.0 0.5 %, the Prime Rate or Term SOFR plus 1.0 0 50.0 0 12.5 to 27.5 basis-points (12.5 basis-points at June 30, 2023). We paid fees of $580 in connection with entering into the revolving credit agreement, which are being amortized ratably through the maturity of the facility in March 2028.
At June 30, 2023, $342,900 was outstanding under the revolving credit agreement. The revolving credit agreement contains customary affirmative and negative covenants, including financial covenants with respect to consolidated leverage and interest coverage ratios, and other customary restrictions. We believe we were in compliance with all covenants at June 30, 2023.
7. DERIVATIVES
We enter into foreign currency forward and option contracts to offset the earnings impact that foreign exchange rate fluctuations would otherwise have on certain monetary liabilities that are denominated in nonfunctional currencies.
11
Derivatives Not Designated as Hedging Instruments
We have 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. The total notional value of our foreign currency exchange contracts not designated as hedging instruments at June 30, 2023 was $18,800 , and such contracts expired in July 2023 .
We recognized losses of $1,658 and $52 from foreign currency forward and option contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the quarters ended June 30, 2023 and 2022, respectively. We recognized losses of $2,052 and $375 from foreign currency forward and option contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the six months ended June 30, 2023 and 2022, respectively.
The following table summarizes the fair value of derivative instruments, which consist solely of foreign exchange contracts, included in other current assets in our condensed consolidated unaudited balance sheets. See Note 8.
Asset Derivatives |
Liability Derivatives |
|||||||||||||||
June 30, 2023 |
December 31, 2022 |
June 30, 2023 |
December 31, 2022 |
|||||||||||||
Derivatives designated as hedging instruments |
$ |
$ | $ |
$ | ||||||||||||
Derivatives not designated as hedging instruments |
||||||||||||||||
Total derivative instruments |
$ |
$ | $ |
$ | ||||||||||||
8. 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 June 30, 2023 Using |
|||||||||||||||||||
Balance Sheet Location |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||||
Assets: |
||||||||||||||||||||
Derivative financial instruments |
Other current assets | $ |
— |
$ |
— |
|||||||||||||||
Equity securities |
Other assets | $ |
$ |
— |
— |
|||||||||||||||
Private equities |
Other assets | $ |
— |
— |
$ |
|||||||||||||||
| Total | Fair Value Measurements at December 31, 2022 Using |
|||||||||||||||||||
| Balance Sheet Location | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Assets: |
||||||||||||||||||||
Equity securities |
Other assets | $ | $ | — | — | |||||||||||||||
Private equities |
Other assets | $ | — | — | $ | |||||||||||||||
The following is a description of the valuation techniques used for these assets and liabilities, as well as the level of input used to measure fair value:
Derivative financial instruments
Equity securities
Private equities
1
2
9. SHAREHOLDERS’ EQUITY
At-the-Market
On February 25, 2022, we entered into an amended and restated sales agreement with Robert W. Baird & Co. Inc. and Goldman Sachs & Co. LLC, which enables the Company to issue and sell shares of Common stock in one or more negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), for a maximum aggregate offering amount of up to $300,000 (the “ATM Program”). The offer and sale of our Common stock pursuant to the ATM Program has been registered under the Securities Act pursuant to our automatically effective shelf registration statement on Form
S-3
(File No. 333-260758).
During the quarter and six months ended June 30, 2023, wesold 45,000 15,179 . Direct costs of $375 incurred in connection with the offering were charged against the proceeds from the sale of Common stock and reflected as a reduction of 284,745 remained available for sale under the ATM Program.
issued and
paid-in
capital. At June 30, 2023, $Common Stock Dividends
We paid cash dividends of $2.45 , $2.20 , $4.90 , and $4.15 per share on both Common and Class B common stock during the quarters and six months ended June 30, 2023 and 2022, respectively.
Restricted Stock
During the six months ended June 30, 2023, a total of 6,047 shares of Common and Class B common stock with an aggregate fair market value of $1,664 were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of restricted stock. These shares were retired upon delivery. During the quarter and six months ended June 30, 2022, 8,181 2,179
Exercise of Stock Options
Cash received from the exercise of stock options during the quarters and six months ended June 30, 2023 and 2022, was $4,526 , $3,267 , $12,694 , and $7,222 , respectively.
During the quarter and six months ended June 30, 2023, 1,737 shares of Common stock with an aggregate fair market value of $595 , and 17,392 shares of Common stock with an aggregate fair market value of $5,383 , respectively, were withheld as payment in lieu of cash for stock option exercises. These shares were retired upon delivery.
Employee Stock Purchase Plan
During the quarters ended June 30, 2023 and 2022, we received net proceeds of $554 and $541 , respectively, for shares of our Common stock purchased under our employee stock purchase plan. During the six months ended June 30, 2023 and 2022, we received net proceeds of $1,133 and $1,006 , respectively, for shares of our Common stock purchased under our employee stock purchase plan.
10. COMMITMENTS AND CONTINGENCIES
Litigation, Claims, and Assessments
We are involved in litigation incidental to the operation of our business. We vigorously defend all matters in which we or our subsidiaries are named defendants and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect us. Although the adequacy of existing insurance coverage and the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, we do not believe the ultimate liability associated with any known claims or litigation will have a material adverse effect on our financial condition or results of operations.
Self-Insurance
Self-insurance reserves are maintained relative to company-wide casualty insurance and health benefit programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When estimating the self-insurance liabilities and related reserves, management considers several factors, which include historical claims experience, demographic factors, severity factors, and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party actuaries to evaluate whether the self-insurance reserves are adequate. If actual claims or adverse development of loss reserves occur and exceed these estimates, additional reserves may be required. Reserves in the amounts of $10,961 and $12,256 at June 30, 2023 and December 31, 2022, respectively, were established related to such programs and are included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets.
13
11. RELATED PARTY TRANSACTIONS
P
urchases from Carrier and its affiliates comprised th
e quarters ended June 30, 2023 and 2022, respectively. Purchases from Carrier and its affiliates comprised arm’s-length
basis in the ordinary course of business. A member of our Board of Directors is the Senior Chairman of Greenberg Traurig, P.A., which serves as our principal outside counsel for compliance and acquisition-related legal services. During the quarters and six months ended June 30, 2023 and 2022, fees for services performed were $58 , $97 , $71 and $129 , respectively, and $25 and $1 was payable at June 30, 2023 and December 31, 2022, respectively.
1
4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form
10-Q
contains or incorporates by reference statements that are not historical in nature and that are intended to be, and are hereby identified as, “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Statements which are not historical in nature, including the words “anticipate,” “estimate,” “could,” “should,” “may,” “plan,” “seek,” “expect,” “believe,” “intend,” “target,” “will,” “project,” “focused,” “outlook,” “goal,” “designed,” and variations of these words and negatives thereof and similar expressions are intended to identify forward-looking statements, including statements regarding, among others, (i) economic conditions, (ii) business and acquisition strategies, (iii) potential acquisitions and/or joint ventures and investments in unconsolidated entities, (iv) financing plans, and (v) industry, demographic and other trends affecting our financial condition or results of operations. These forward-looking statements are based on management’s current expectations, are not guarantees of future performance and are subject to a number of risks, uncertainties, and changes in circumstances, certain of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of several factors, including, but not limited to: | • | 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, including conditions that impact the supply chain; |
| • | fluctuations in certain commodity costs; |
| • | consumer spending; |