WATSCO INC - Quarter Report: 2020 September (Form 10-Q)
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, 2020
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
(a Florida Corporation)
2665 South Bayshore Drive, Suite 901
Miami, Florida 33133
Telephone:
(305) 714-4100
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 November 2, 2020 comprised (i) 32,846,271 shares of Common stock, $0.50 par value per share, excluding 4,823,988 treasury shares and (ii) 5,635,926 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. |
||||||
| PART I. FINANCIAL INFORMATION |
||||||
Item 1. |
||||||
3 |
||||||
4 |
||||||
5 |
||||||
6 |
||||||
8 |
||||||
9 |
||||||
Item 2. |
16 |
|||||
Item 3. |
24 |
|||||
Item 4. |
24 |
|||||
| PART II. OTHER INFORMATION |
||||||
Item 1. |
25 |
|||||
Item 1A. |
25 |
|||||
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, |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues |
$ |
1,536,671 |
$ | 1,394,915 | $ |
3,900,212 |
$ | 3,698,047 | ||||||||
| Cost of sales |
1,162,908 |
1,060,224 | 2,959,635 |
2,801,612 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Gross profit |
373,763 |
334,691 | 940,577 |
896,435 | ||||||||||||
| Selling, general and administrative expenses |
221,037 |
212,902 | 618,476 |
589,523 | ||||||||||||
| Other income |
4,055 |
3,530 | 9,172 |
7,939 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating income |
156,781 |
125,319 | 331,273 |
314,851 | ||||||||||||
| Interest expense, net |
108 |
1,434 | 1,181 |
3,422 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Income before income taxes |
156,673 |
123,885 | 330,092 |
311,429 | ||||||||||||
| Income taxes |
30,467 |
24,230 | 63,397 |
60,060 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income |
126,206 |
99,655 | 266,695 |
251,369 | ||||||||||||
| Less: net income attributable to non-controlling interest |
19,717 |
16,175 | 43,126 |
42,697 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income attributable to Watsco, Inc. |
$ |
106,489 |
$ | 83,480 | $ |
223,569 |
$ | 208,672 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Earnings per share for Common and Class B common stock: |
||||||||||||||||
| Basic |
$ |
2.77 |
$ | 2.20 | $ |
5.83 |
$ | 5.54 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Diluted |
$ |
2.76 |
$ | 2.20 | $ |
5.82 |
$ | 5.54 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
See accompanying notes to condensed consolidated unaudited financial statements.
3 of 27
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| Quarter Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net income |
$ |
126,206 |
$ | 99,655 | $ |
266,695 |
$ | 251,369 | ||||||||
| Other comprehensive income (loss), net of tax |
||||||||||||||||
| Foreign currency translation adjustment |
5,514 |
(3,038 | ) | (6,592 |
) |
7,264 | ||||||||||
| Unrealized (loss) gain on cash flow hedging instruments |
(416 |
) |
255 | 948 |
(798 | ) | ||||||||||
| Reclassification of gain on cash flow hedging instruments into earnings |
(509 |
) |
(140 | ) | (691 |
) |
(542 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other comprehensive income (loss) |
4,589 |
(2,923 | ) | (6,335 |
) |
5,924 | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive income |
130,795 |
96,732 | 260,360 |
257,293 | ||||||||||||
| Less: comprehensive income attributable to non-controlling interest |
21,283 |
15,146 | 40,986 |
44,693 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive income attributable to Watsco, Inc. |
$ |
109,512 |
$ | 81,586 | $ |
219,374 |
$ | 212,600 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
See accompanying notes to condensed consolidated unaudited financial statements.
4 of 27
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| September 30, 2020 |
December 31, 2019 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
92,600 |
$ | 74,454 | ||||
| Accounts receivable, net |
644,124 |
533,810 | ||||||
| Inventories |
884,653 |
920,786 | ||||||
| Other current assets |
22,742 |
17,680 | ||||||
| |
|
|
|
|||||
| Total current assets |
1,644,119 |
1,546,730 | ||||||
| Property and equipment, net |
97,660 |
98,523 | ||||||
| Operating lease right-of-use |
218,884 |
223,369 | ||||||
| Goodwill |
409,783 |
411,217 | ||||||
| Intangible assets, net |
164,551 |
172,004 | ||||||
| Investment in unconsolidated entity |
103,355 |
94,833 | ||||||
| Other assets |
9,333 |
9,485 | ||||||
| |
|
|
|
|||||
$ |
2,647,685 |
$ | 2,556,161 | |||||
| |
|
|
|
|||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current portion of lease liabilities |
$ |
71,174 |
$ | 69,421 | ||||
| Accounts payable |
352,694 |
239,666 | ||||||
| Accrued expenses and other current liabilities |
185,630 |
152,630 | ||||||
| |
|
|
|
|||||
| Total current liabilities |
609,498 |
461,717 | ||||||
| |
|
|
|
|||||
| Long-term obligations: |
||||||||
| Borrowings under revolving credit agreement |
668 |
155,700 | ||||||
| Operating lease liabilities, net of current portion |
149,075 |
154,271 | ||||||
| Finance lease liabilities, net of current portion |
3,569 |
2,009 | ||||||
| |
|
|
|
|||||
| Total long-term obligations |
153,312 |
311,980 | ||||||
| |
|
|
|
|||||
| Deferred income taxes and other liabilities |
74,937 |
67,697 | ||||||
| |
|
|
|
|||||
| Commitments and contingencies |
||||||||
| Watsco, Inc. shareholders’ equity: |
||||||||
| Common stock, $0.50 par value |
18,830 |
18,768 | ||||||
| Class B common stock, $0.50 par value |
2,830 |
2,765 | ||||||
| Preferred stock, $0.50 par value |
— |
— | ||||||
| Paid-in capital |
940,015 |
907,877 | ||||||
| Accumulated other comprehensive loss, net of tax |
(43,245 |
) |
(39,050 | ) | ||||
| Retained earnings |
658,622 |
632,507 | ||||||
| Treasury stock, at cost |
(87,440 |
) |
(87,440 | ) | ||||
| |
|
|
|
|||||
| Total Watsco, Inc. shareholders’ equity |
1,489,612 |
1,435,427 | ||||||
| Non-controlling interest |
320,326 |
279,340 | ||||||
| |
|
|
|
|||||
| Total shareholders’ equity |
1,809,938 |
1,714,767 | ||||||
| |
|
|
|
|||||
$ |
2,647,685 |
$ | 2,556,161 | |||||
| |
|
|
|
|||||
See accompanying notes to condensed consolidated unaudited financial statements.
5 of 27
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 , 2019 |
38,194,056 |
$ |
21,533 |
$ |
907,877 |
$ |
(39,050 |
) |
$ |
632,507 |
$ |
(87,440 |
) |
$ |
279,340 |
$ |
1,714,767 |
|||||||||||||||
| Net income |
30,502 |
5,745 |
36,247 |
|||||||||||||||||||||||||||||
| Other comprehensive (loss) |
(12,739 |
) |
(6,541 |
) |
(19,280 |
) | ||||||||||||||||||||||||||
| Issuances of non-vested restricted shares of common stock |
113,765 |
57 |
(57 |
) |
— |
|||||||||||||||||||||||||||
| Common stock contribution to 401 (k) plan |
25,216 |
13 |
4,530 |
4,543 |
||||||||||||||||||||||||||||
| Stock issuances from exercise of stock options and employee stock purchase plan |
18,674 |
9 |
2,532 |
2,541 |
||||||||||||||||||||||||||||
| Retirement of common stock |
(4,828 |
) |
(2 |
) |
(789 |
) |
(791 |
) | ||||||||||||||||||||||||
| Share-based compensation |
6,097 |
6,097 |
||||||||||||||||||||||||||||||
| Cash dividends declared and paid on Common and Class B common stock, $1.60 per share |
(61,238 |
) |
(61,238 |
) | ||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at March 31 , 2020 |
38,346,883 |
21,610 |
920,190 |
(51,789 |
) |
601,771 |
(87,440 |
) |
278,544 |
1,682,886 |
||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Net income |
86,578 |
17,664 |
104,242 |
|||||||||||||||||||||||||||||
| Other comprehensive income |
5,521 |
2,835 |
8,356 |
|||||||||||||||||||||||||||||
| Issuances of non-vested restricted shares of common stock |
15,500 |
8 |
(8 |
) |
— |
|||||||||||||||||||||||||||
| Stock issuances from exercise of stock options and employee stock purchase plan |
32,073 |
16 |
4,529 |
4,545 |
||||||||||||||||||||||||||||
| Retirement of common stock |
(6,377 |
) |
(4 |
) |
(1,092 |
) |
(1,096 |
) | ||||||||||||||||||||||||
| Share-based compensation |
5,226 |
5,226 |
||||||||||||||||||||||||||||||
| Cash dividends declared and paid on Common and Class B common stock, $1.775 per share |
(68,077 |
) |
(68,077 |
) | ||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at June 30 , 2020 |
38,388,079 |
21,630 |
928,845 |
(46,268 |
) |
620,272 |
(87,440 |
) |
299,043 |
1,736,082 |
||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Net income |
106,489 |
19,717 |
126,206 |
|||||||||||||||||||||||||||||
| Other comprehensive income |
3,023 |
1,566 |
4,589 |
|||||||||||||||||||||||||||||
| Issuances of non-vested restricted shares of common stock |
20,000 |
10 |
(10 |
) |
— |
|||||||||||||||||||||||||||
| Forfeitures of non-vested restricted shares of common stock |
(3,589 |
) |
(2 |
) |
2 |
— |
||||||||||||||||||||||||||
| Stock issuances from exercise of stock options and employee stock purchase plan |
55,473 |
28 |
8,438 |
8,466 |
||||||||||||||||||||||||||||
| Retirement of common stock |
(11,943 |
) |
(6 |
) |
(2,749 |
) |
(2,755 |
) | ||||||||||||||||||||||||
| Share-based compensation |
5,489 |
5,489 |
||||||||||||||||||||||||||||||
| Cash dividends declared and paid on Common and Class B common stock, $1.775 per share |
(68,139 |
) |
(68,139 |
) | ||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at September 30 , 2020 |
38,448,020 |
$ |
21,660 |
$ |
940,015 |
$ |
(43,245 |
) |
$ |
658,622 |
$ |
(87,440 |
) |
$ |
320,326 |
$ |
1,809,938 |
|||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Continued on next page.
6 of 27
(In thousands, except share and per share data) |
Common Stock, Class B Common Stock and Preferred Stock Shares |
Common Stock, Class B Common Stock and Preferred Stock Amount |
Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Treasury Stock |
Non-controlling Interest |
Total |
||||||||||||||||||||||||
| Balance at December 31 , 2018 |
37,461,643 |
$ |
21,167 |
$ |
832,121 |
$ |
(45,968 |
) |
$ |
627,969 |
$ |
(87,440 |
) |
$ |
253,864 |
$ |
1,601,713 |
|||||||||||||||
| Net income |
35,037 |
8,767 |
43,804 |
|||||||||||||||||||||||||||||
| Other comprehensive income |
2,783 |
1,412 |
4,195 |
|||||||||||||||||||||||||||||
| Issuances of non-vested restricted shares of common stock |
77,049 |
39 |
(39 |
) |
— |
|||||||||||||||||||||||||||
| Forfeitures of non-vested restricted shares of common stock |
(5,000 |
) |
(3 |
) |
3 |
— |
||||||||||||||||||||||||||
| Common stock contribution to 401 (k) plan |
30,715 |
15 |
4,259 |
4,274 |
||||||||||||||||||||||||||||
| Stock issuances from exercise of stock options and employee stock purchase plan |
8,925 |
4 |
1,121 |
1,125 |
||||||||||||||||||||||||||||
| Retirement of common stock |
(2,985 |
) |
(1 |
) |
(427 |
) |
(428 |
) | ||||||||||||||||||||||||
| Share-based compensation |
4,537 |
4,537 |
||||||||||||||||||||||||||||||
| Cash dividends declared and paid on Common and Class B common stock, $1.60 per share |
(59,965 |
) |
(59,965 |
) | ||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at March 31 , 2019 |
37,570,347 |
21,221 |
841,575 |
(43,185 |
) |
603,041 |
(87,440 |
) |
264,043 |
1,599,255 |
||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Net income |
90,155 |
17,755 |
107,910 |
|||||||||||||||||||||||||||||
| Other comprehensive income |
3,039 |
1,613 |
4,652 |
|||||||||||||||||||||||||||||
| Issuances of non-vested restricted shares of common stock |
26,354 |
13 |
(13 |
) |
— |
|||||||||||||||||||||||||||
| Stock issuances from exercise of stock options and employee stock purchase plan |
15,807 |
9 |
1,942 |
1,951 |
||||||||||||||||||||||||||||
| Retirement of common stock |
(3,608 |
) |
(2 |
) |
(553 |
) |
(555 |
) | ||||||||||||||||||||||||
| Share-based compensation |
4,324 |
4,324 |
||||||||||||||||||||||||||||||
| Cash dividends declared and paid on Common and Class B common stock, $1.60 per share |
(60,213 |
) |
(60,213 |
) | ||||||||||||||||||||||||||||
| Common stock issued for Dunphey & Associates Supply Co., Inc. |
50,952 |
25 |
7,425 |
7,450 |
||||||||||||||||||||||||||||
| Investment in unconsolidated entity |
988 |
988 |
||||||||||||||||||||||||||||||
| Decrease in non-controlling interest in Carrier Enterprise II |
(25,768 |
) |
(6,632 |
) |
(32,400 |
) | ||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at June 30 , 2019 |
37,659,852 |
21,266 |
828,932 |
(40,146 |
) |
632,983 |
(87,440 |
) |
277,767 |
1,633,362 |
||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Net income |
83,480 |
16,175 |
99,655 |
|||||||||||||||||||||||||||||
| Other comprehensive (loss) |
(1,894 |
) |
(1,029 |
) |
(2,923 |
) | ||||||||||||||||||||||||||
| Issuances of non-vested restricted shares of common stock |
37,834 |
19 |
(19 |
) |
— |
|||||||||||||||||||||||||||
| Forfeitures of non-vested restricted shares of common stock |
(5,337 |
) |
(3 |
) |
3 |
— |
||||||||||||||||||||||||||
| Stock issuances from exercise of stock options and employee stock purchase plan |
36,374 |
19 |
4,510 |
4,529 |
||||||||||||||||||||||||||||
| Retirement of common stock |
(4,030 |
) |
(2 |
) |
(667 |
) |
(669 |
) | ||||||||||||||||||||||||
| Share-based compensation |
3,706 |
3,706 |
||||||||||||||||||||||||||||||
| Cash dividends declared and paid on Common and Class B common stock, $1.60 per share |
(60,276 |
) |
(60,276 |
) | ||||||||||||||||||||||||||||
| Common stock issued for Peirce-Phelps, Inc. |
372,543 |
186 |
58,452 |
58,638 |
||||||||||||||||||||||||||||
| Investment in Peirce-Phelps, Inc. |
17,000 |
17,000 |
||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
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| Balance at September 30 , 2019 |
38,097,236 |
$ |
21,485 |
$ |
894,917 |
$ |
(42,040 |
) |
$ |
656,187 |
$ |
(87,440 |
) |
$ |
309,913 |
$ |
1,753,022 |
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