Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
|
WSO |
New York Stock Exchange | ||
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WSOB |
New York Stock Exchange |
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
Emerging growth company |
Page No. |
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Item 1. |
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3 |
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4 |
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5 |
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6 |
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8 |
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9 |
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Item 2. |
15 |
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Item 3. |
22 |
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Item 4. |
22 |
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Item 1. |
22 |
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Item 1A. |
22 |
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Item 2. |
22 |
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Item 6. |
23 |
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24 |
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EXHIBITS |
Quarters Ended March 31, |
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2022 |
2021 |
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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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|
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Earnings per share for Common and Class B common stock: |
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Basic |
$ |
$ | ||||||
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|
|
|
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Diluted |
|
$ |
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|
$ |
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|
|
|
|
Quarters Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net income |
$ |
$ | ||||||
Other comprehensive income, net of tax |
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Foreign currency translation adjustment |
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Unrealized gain on cash flow hedging instruments arising during the period |
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Reclassification of loss on cash flow hedging instruments into earnings |
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Other comprehensive income |
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Comprehensive income |
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Less: comprehensive income attributable to non-controlling interest |
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|
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Comprehensive income attributable to Watsco, Inc. |
$ |
$ | ||||||
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|
|
|
March 31, 2022 |
December 31, 2021 |
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(Unaudited) | ||||||||
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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|
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|
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Current portion of long-term obligations |
$ |
$ | ||||||
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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|
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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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|
|
(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 |
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Balance at December 31, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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Net income |
||||||||||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||||||
Issuances of non-vested 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, $ |
( |
) |
( |
) | ||||||||||||||||||||||||||||
Balance at March 31, 2022 |
$ |
$ |
$ |
( |
) | $ |
$ |
( |
) | $ |
$ |
|||||||||||||||||||||
(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 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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Net income |
||||||||||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock |
( |
) | — | |||||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock |
( |
) | ( |
) | — | |||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
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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, $ |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at March 31, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
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Quarters Ended March 31, |
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2022 |
2021 |
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Cash flows from operating activities: |
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Net income |
$ |
$ | ||||||
Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
Depreciation and amortization |
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Share-based compensation |
||||||||
Non-cash contribution to 401(k) plan |
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Provision for doubtful accounts |
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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 acquisition: |
||||||||
Accounts receivable, net |
( |
) | ( |
) | ||||
Inventori e s, net |
( |
) | ( |
) | ||||
Accounts payable and other liabilities |
||||||||
Other, net |
( |
) | ||||||
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|
|
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Net cash used in operating activities |
( |
) | ( |
) | ||||
|
|
|
|
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Cash flows from investing activities: |
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Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Business acquisition |
|
|
( |
) |
|
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|
|
Proceeds from sale of equity securities |
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Proceeds from sale of property and equipment |
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|
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Net cash (used in) provided by investing activities |
( |
) | ||||||
|
|
|
|
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Cash flows from financing activities: |
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Dividends on Common and Class B common stock |
( |
) | ( |
) | ||||
Net repayments of finance lease liabilities |
( |
) | ( |
) | ||||
Net proceeds from issuances of common stock |
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Net proceeds under revolving credit agreement |
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|
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|
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Net cash provided by (used in) financing activities |
( |
) | ||||||
|
|
|
|
|||||
Effect of foreign exchange rate changes on cash and cash equivalents |
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|
|
|
|
|||||
Net decrease in cash and cash equivalents |
( |
) |
( |
) | ||||
Cash and cash equivalents at beginning of period |
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|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ |
$ | ||||||
|
|
|
|
1. |
BASIS OF PRESENTATION |
2. |
REVENUES |
Quarters Ended March 31, |
2022 |
2021 |
||||||
Primary Geographical Regions: |
||||||||
United States |
$ |
$ | ||||||
Canada |
||||||||
Latin America and the Caribbean |
||||||||
$ |
$ | |||||||
Major Product Lines: |
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HVAC equipment |
% |
% | ||||||
Other HVAC products |
% |
% | ||||||
Commercial refrigeration products |
% |
% | ||||||
% |
% | |||||||
3. |
EARNINGS PER SHARE |
Quarters Ended March 31, |
2022 |
2021 |
||||||
Basic Earnings per Share: |
||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | ||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock |
||||||||
Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | ||||||
Weighted-average common shares outstanding – Basic |
||||||||
Basic earnings per share for Common and Class B common stock |
$ |
$ | ||||||
Allocation of earnings for Basic: |
||||||||
Common stock |
$ |
$ | ||||||
Class B common stock |
||||||||
$ |
$ | |||||||
Diluted Earnings per Share: |
||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | ||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock |
||||||||
Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | ||||||
Weighted-average common shares outstanding – Basic |
||||||||
Effect of dilutive stock options |
||||||||
Weighted-average common shares outstanding – Diluted |
||||||||
Diluted earnings per share for Common and Class B common stock |
$ |
$ | ||||||
Anti-dilutive stock options not included above |
4. |
OTHER COMPREHENSIVE INCOME |
Quarters Ended March 31, |
2022 |
2021 |
||||||
Foreign currency translation adjustment |
$ |
$ | ||||||
Unrealized gain on cash flow hedging instruments |
||||||||
Income tax expense |
( |
) | ||||||
Unrealized gain on cash flow hedging instruments, net of tax |
||||||||
Reclassification of loss on cash flow hedging instruments into earnings |
||||||||
Income tax benefit |
( |
) | ||||||
Reclassification of loss on cash flow hedging instruments into earnings, net of tax |
||||||||
Other comprehensive income |
$ |
$ | ||||||
Quarters Ended March 31, |
2022 |
2021 |
||||||
Foreign currency translation adjustment: |
||||||||
Beginning balance |
$ |
( |
) | $ | ( |
) | ||
Current period other comprehensive income |
||||||||
Ending balance |
( |
) | ( |
) | ||||
Cash flow hedging instruments: |
||||||||
Beginning balance |
( |
) | ||||||
Current period other comprehensive income |
||||||||
Reclassification adjustment |
||||||||
Ending balance |
||||||||
Accumulated other comprehensive loss, net of tax |
$ |
( |
) |
$ | ( |
) | ||
5. |
DERIVATIVES |
Quarters Ended March 31, |
2022 |
2021 |
||||||
Gain recorded in accumulated other comprehensive loss |
$ | |||||||
Loss reclassified from accumulated other comprehensive loss into earnings |
$ |
Asset Derivatives |
Liability Derivatives |
|||||||||||||||
March 31, 2022 |
December 31, 2021 |
March 31, 2022 |
December 31, 2021 |
|||||||||||||
Derivatives designated as hedging instruments |
$ |
$ | $ |
$ | ||||||||||||
Derivatives not designated as hedging instruments |
||||||||||||||||
Total derivative instruments |
$ |
$ | $ |
$ |
||||||||||||
6. |
FAIR VALUE MEASUREMENTS |
Balance Sheet Location |
Total |
Fair Value Measurements at March 31, 2022 Using |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||
Assets: |
||||||||||||||||||
Equity securities |
Other assets | $ |
$ |
— |
— |
|||||||||||||
Private equities |
|
Other assets |
|
$ |
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|
Liabilities: |
||||||||||||||||||
Derivative financial instruments |
Accrued expenses and other |
$ |
— |
$ |
— |
Balance Sheet Location |
Total |
Fair Value Measurements at December 31, 2021 Using |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||
Assets: |
||||||||||||||||||
Equity securities |
Other assets | $ |
$ |
— |
— |
|||||||||||||
Private equities |
Other assets | $ |
— |
— |
$ |
|||||||||||||
Liabilities: |
||||||||||||||||||
Derivative financial instruments |
Accrued expenses and other |
$ |
— |
$ |
— |
7. |
SHAREHOLDERS’ EQUITY |
8. |
COMMITMENTS AND CONTINGENCIES |
9. |
RELATED PARTY TRANSACTIONS |
• | general economic conditions, both in the United States and in the international markets we serve; |
• | competitive factors within the HVAC/R industry; |
• | effects of supplier concentration; |
• | fluctuations in certain commodity costs; |
• | consumer spending; |
• | consumer debt levels; |
• | the continued impact of the COVID-19 pandemic; |
• | new housing starts and completions; |
• | capital spending in the commercial construction market; |
• | access to liquidity needed for operations; |
• | seasonal nature of product sales; |
• | weather patterns and conditions; |
• | insurance coverage risks; |
• | federal, state, and local regulations impacting our industry and products; |
• | prevailing interest rates; |
• | foreign currency exchange rate fluctuations; |
• | international risk; |
• | cybersecurity risk; and |
• | the continued viability of our business strategy. |
2022 |
2021 |
|||||||
Revenues |
100.0 |
% |
100.0 | % | ||||
Cost of sales |
70.4 |
74.1 | ||||||
|
|
|
|
|||||
Gross profit |
29.6 |
25.9 | ||||||
Selling, general and administrative expenses |
18.6 |
19.2 | ||||||
Other income |
0.3 |
0.4 | ||||||
|
|
|
|
|||||
Operating income |
11.2 |
7.2 | ||||||
Interest expense, net |
0.0 |
0.0 | ||||||
|
|
|
|
|||||
Income before income taxes |
11.2 |
7.2 | ||||||
Income taxes |
2.3 |
1.4 | ||||||
|
|
|
|
|||||
Net income |
8.9 |
5.8 | ||||||
Less: net income attributable to non-controlling interest |
1.4 |
1.0 | ||||||
|
|
|
|
|||||
Net income attributable to Watsco, Inc. |
7.4 |
% |
4.8 | % | ||||
|
|
|
|
Number of Locations |
||||
March 31, 2021 |
601 | |||
Opened |
22 | |||
Acquired |
56 | |||
Closed |
(8 | ) | ||
|
|
|||
December 31, 2021 |
671 | |||
Opened |
2 | |||
Closed |
(2 | ) | ||
|
|
|||
March 31, 2022 |
671 |
|||
|
|
• | cash needed to fund our business (primarily working capital requirements); |
• | borrowing capacity under our revolving credit facility; |
• | the ability to attract long-term capital with satisfactory terms; |
• | acquisitions, including joint ventures and investments in unconsolidated entities; |
• | dividend payments; |
• | capital expenditures; and |
• | the timing and extent of common stock repurchases. |
2022 |
2021 | Change | ||||||||||
Cash flows used in operating activities |
$ |
(101.6 |
) |
$ | (37.7 | ) | $ | (63.9 | ) | |||
Cash flows (used in) provided by investing activities |
$ |
(8.2 |
) |
$ | 1.2 | $ | (9.4 | ) | ||||
Cash flows provided by (used in) financing activities |
$ |
101.4 |
$ | (16.3 | ) | $ | 117.7 |
# | filed herewith. |
+ | furnished herewith. |
* | Management contract or compensation plan or arrangement. |
WATSCO, INC. | ||||||
(Registrant) | ||||||
Date: May 5, 2022 | By: | /s/ Ana M. Menendez | ||||
Ana M. Menendez | ||||||
Chief Financial Officer (on behalf of the Registrant and as Principal Financial Officer) |