(In thousands, except per share data) |
2020 |
2019 |
2018 |
2017 |
2016 |
|||||||||||||||
FOR THE YEAR |
||||||||||||||||||||
Revenues |
$ | 5,054,928 | $ | 4,770,362 | $ | 4,546,653 | $ | 4,341,955 | $ | 4,220,702 | ||||||||||
Gross profit |
1,222,821 | 1,156,956 | 1,120,252 | 1,065,659 | 1,034,584 | |||||||||||||||
Operating income |
401,034 | 366,884 | 372,082 | 353,874 | 345,632 | |||||||||||||||
Net income |
323,172 | 295,775 | 296,529 | 257,290 | 235,983 | |||||||||||||||
Less: net income attributable to non-controlling interest |
53,593 | 49,825 | 53,597 | 49,069 | 53,173 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to Watsco, Inc. |
$ | 269,579 | $ | 245,950 | $ | 242,932 | $ | 208,221 | $ | 182,810 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Diluted earnings per share for Common and Class B common stock |
$ | 7.01 | $ | 6.50 | $ | 6.49 | $ | 5.81 | $ | 5.15 | ||||||||||
Cash dividends per share: |
||||||||||||||||||||
Common stock |
$ | 6.925 | $ | 6.40 | $ | 5.60 | $ | 4.60 | $ | 3.60 | ||||||||||
Class B common stock |
$ | 6.925 | $ | 6.40 | $ | 5.60 | $ | 4.60 | $ | 3.60 | ||||||||||
Weighted-average Common and Class B common shares outstanding - Diluted |
35,151 | 34,676 | 34,374 | 32,863 | 32,617 | |||||||||||||||
AT YEAR END |
||||||||||||||||||||
Total assets |
$ | 2,484,347 | $ | 2,556,161 | $ | 2,161,033 | $ | 2,046,877 | $ | 1,874,649 | ||||||||||
Total long-term obligations |
$ | 144,338 | $ | 311,980 | $ | 135,752 | $ | 22,085 | $ | 235,642 | ||||||||||
Total shareholders’ equity |
$ | 1,779,761 | $ | 1,714,767 | $ | 1,601,713 | $ | 1,550,977 | $ | 1,251,748 | ||||||||||
Number of employees |
5,800 | 5,800 | 5,200 | 5,200 | 5,050 |
(1) | Effective January 1, 2019, we adopted the provisions of accounting guidance related to leases. Amounts prior to January 1, 2019 have not been adjusted and remain as originally reported for such periods. |
(2) | Effective January 1, 2018, we adopted the provisions of accounting guidance related to revenue recognition. Amounts prior to January 1, 2018 have not been adjusted and remain as originally reported for such periods. |
• | general economic conditions, both in the United States and in the international markets we serve; |
• | competitive factors within the HVAC/R industry; |
• | effects of supplier concentration; |
• | fluctuations in certain commodity costs; |
• | consumer spending; |
• | consumer debt levels; |
• | the continued impact of the COVID-19 pandemic; |
• | new housing starts and completions; |
• | capital spending in the commercial construction market; |
• | access to liquidity needed for operations; |
• | seasonal nature of product sales; |
• | weather patterns and conditions; |
• | insurance coverage risks; |
• | federal, state, and local regulations impacting our industry and products; |
• | prevailing interest rates; |
• | foreign currency exchange rate fluctuations; |
• | international risk; |
• | cybersecurity risk; and |
• | the continued viability of our business strategy. |
2020 |
2019 |
2018 |
||||||||||
Revenues |
100.0 |
% |
100.0 | % | 100.0 | % | ||||||
Cost of sales |
75.8 |
75.7 | 75.4 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
24.2 |
24.3 | 24.6 | |||||||||
Selling, general and administrative expenses |
16.5 |
16.8 | 16.7 | |||||||||
Other income |
0.2 |
0.2 | 0.2 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
7.9 |
7.7 | 8.2 | |||||||||
Interest expense, net |
0.0 |
0.1 | 0.1 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
7.9 |
7.6 | 8.1 | |||||||||
Income taxes |
1.5 |
1.4 | 1.6 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
6.4 |
6.2 | 6.5 | |||||||||
Less: net income attributable to non-controlling interest |
1.1 |
1.0 | 1.2 | |||||||||
|
|
|
|
|
|
|||||||
Net income attributable to Watsco, Inc. |
5.3 |
% |
5.2 | % | 5.3 | % | ||||||
|
|
|
|
|
|
Note: | Due to rounding, percentages may not add up to 100. |
Number of Locations |
||||
December 31, 2018 |
571 | |||
Opened |
14 | |||
Acquired |
33 | |||
Closed |
(12 | ) | ||
|
|
|||
December 31, 2019 |
606 | |||
Opened |
3 | |||
Closed |
(9 | ) | ||
|
|
|||
December 31, 2020 |
600 |
|||
|
|
|||
|
|
• | cash needed to fund our business (primarily working capital requirements); |
• | borrowing capacity under our revolving credit facility; |
• | the ability to attract long-term capital with satisfactory terms; |
• | acquisitions, including joint ventures and investments in unconsolidated entities; |
• | dividend payments; |
• | capital expenditures; and |
• | the timing and extent of common stock repurchases. |
2020 |
2019 |
Change |
||||||||||
Cash flows provided by operating activities |
$ |
534.4 |
$ | 335.8 | $ | 198.6 | ||||||
Cash flows used in investing activities |
$ |
(16.3 |
) |
$ | (81.0 | ) | $ | 64.7 | ||||
Cash flows used in financing activities |
$ |
(448.5 |
) |
$ | (264.0 | ) | $ | (184.5 | ) |
Payments due by Period (in millions) |
||||||||||||||||||||||||||||
Contractual Obligations |
2021 |
2022 |
2023 |
2024 |
2025 |
Thereafter |
Total |
|||||||||||||||||||||
Operating leases (1) |
$ | 77.2 | $ | 62.3 | $ | 44.9 | $ | 25.1 | $ | 9.7 | $ | 6.8 | $ | 226.0 | ||||||||||||||
Purchase obligations (2) |
31.8 | — | — | — | — | — | 31.8 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 109.0 | $ | 62.3 | $ | 44.9 | $ | 25.1 | $ | 9.7 | $ | 6.8 | $ | 257.8 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes imputed interest of $16.2 million. Additional information related to operating leases can be found in Note 2 to our audited consolidated financial statements contained in this Annual Report on Form 10-K. |
(2) | Purchase obligations include amounts committed under purchase orders for goods with defined terms as to price, quantity, and delivery. Purchase orders made in the ordinary course of business that are cancelable are excluded from the above table. Any amounts for which we are liable under purchase orders for goods received are reflected in Accounts Payable in our audited consolidated balance sheets and are excluded from the above table. |
/s/ KPMG LLP | ||
Miami, Florida | ||
February 26, 2021 |
/s/ KPMG LLP |
Years Ended December 31, |
||||||||||||
(In thousands, except per share data) |
2020 |
2019 |
2018 |
|||||||||
Revenues |
$ | $ | $ | |||||||||
Cost of sales |
||||||||||||
|
|
|
|
|
|
|||||||
Gross profit |
||||||||||||
Selling, general and administrative expenses |
||||||||||||
Other income |
||||||||||||
|
|
|
|
|
|
|||||||
Operating income |
||||||||||||
Interest expense, net |
||||||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
||||||||||||
Income taxes |
||||||||||||
|
|
|
|
|
|
|||||||
Net income |
||||||||||||
Less: net income attributable to non-controlling interest |
||||||||||||
|
|
|
|
|
|
|||||||
Net income attributable to Watsco, Inc. |
$ | $ | $ | |||||||||
|
|
|
|
|
|
|||||||
Earnings per share for Common and Class B common stock: |
||||||||||||
Basic |
$ | $ | $ | |||||||||
|
|
|
|
|
|
|||||||
Diluted |
$ | $ | $ | |||||||||
|
|
|
|
|
|
Years Ended December 31, |
||||||||||||
(In thousands) |
2020 |
2019 |
2018 |
|||||||||
Net income |
$ | $ | $ | |||||||||
Other comprehensive income (loss), net of tax |
||||||||||||
Foreign currency translation adjustment |
( |
) | ||||||||||
Unrealized gain (loss) on cash flow hedging instruments |
( |
) | ||||||||||
Reclassification of gain on cash flow hedging instruments into earnings |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss) |
( |
) | ||||||||||
Comprehensive income |
||||||||||||
Less: comprehensive income attributable to non-controlling interest |
||||||||||||
|
|
|
|
|
|
|||||||
Comprehensive income attributable to Watsco, Inc. |
$ | $ | $ | |||||||||
|
|
|
|
|
|
December 31, |
||||||||
(In thousands, except share and per share data) |
2020 |
2019 |
||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net |
||||||||
Inventories, net |
||||||||
Other current assets |
||||||||
|
|
|
|
|||||
Total current assets |
||||||||
|
|
|
|
|||||
Property and equipment, net |
||||||||
Operating lease right-of-use |
||||||||
Goodwill |
||||||||
Intangible assets, net |
||||||||
Investment in unconsolidated entity |
||||||||
Other assets |
||||||||
|
|
|
|
|||||
$ | $ | |||||||
|
|
|
|
|||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term obligations |
$ | $ | ||||||
Accounts payable |
||||||||
Accrued expenses and other current liabilities |
||||||||
|
|
|
|
|||||
Total current liabilities |
||||||||
|
|
|
|
|||||
Long-term obligations: |
||||||||
Borrowings under revolving credit agreement |
||||||||
Operating lease liabilities, net of current portion |
||||||||
Finance lease liabilities, net of current portion |
||||||||
|
|
|
|
|||||
Total long-term obligations |
||||||||
|
|
|
|
|||||
Deferred income taxes and other liabilities |
||||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Watsco, Inc. shareholders’ equity: |
||||||||
Common stock, $ |
||||||||
Class B common stock, $ |
||||||||
Preferred stock, $ |
||||||||
Paid-in capital |
||||||||
Accumulated other comprehensive loss, net of tax |
( |
) | ( |
) | ||||
Retained earnings |
||||||||
Treasury stock, at cost, |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Total Watsco, Inc. shareholders’ equity |
||||||||
Non-controlling interest |
||||||||
|
|
|
|
|||||
Total shareholders’ equity |
||||||||
|
|
|
|
|||||
$ | $ | |||||||
|
|
|
|
(In thousands, except share and per share data) |
Common Stock, Class B Common Stock and Preferred Stock Shares |
Common Stock, Class B Common Stock and Preferred Stock Amount |
Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Treasury Stock |
Non- controlling Interest |
Total |
||||||||||||||||||||||||
Balance at December 31, 2017 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
Cumulative-effect adjustment |
( |
) | — | |||||||||||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive loss |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock |
( |
) | — | |||||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock |
( |
) | ( |
) | — | |||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ |
( |
( |
) | |||||||||||||||||||||||||||||
Common stock issued for Alert Labs, Inc. |
||||||||||||||||||||||||||||||||
Investment in unconsolidated entity |
||||||||||||||||||||||||||||||||
Distributions to non-controlling interest |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at December 31, 2018 |
( |
) |
( |
) |
||||||||||||||||||||||||||||
(In thousands, except share and per share data) |
Common Stock, Class B Common Stock and Preferred Stock Shares |
Common Stock, Class B Common Stock and Preferred Stock Amount |
Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Treasury Stock |
Non- controlling Interest |
Total |
||||||||||||||||||||||||
Balance at December 31, 2018 |
( |
) |
( |
) |
||||||||||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive gain |
||||||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock |
( |
) | — | |||||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock |
( |
) | ( |
) | — | |||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Common stock issued for Dunphey & Associates Supply Co., Inc. |
||||||||||||||||||||||||||||||||
Investment in unconsolidated entity |
||||||||||||||||||||||||||||||||
Decrease in non-controlling interest in Carrier Enterprise II |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Common stock issued for Peirce-Phelps, Inc. |
||||||||||||||||||||||||||||||||
Investment in Peirce-Phelps, Inc. |
||||||||||||||||||||||||||||||||
Common stock issued for N&S Supply of Fishkill, Inc. |
||||||||||||||||||||||||||||||||
Distributions to non-controlling interest |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at December 31, 2019 |
( |
) |
( |
) |
||||||||||||||||||||||||||||
(In thousands, except share and per share data) |
Common Stock, Class B Common Stock and Preferred Stock Shares |
Common Stock, Class B Common Stock and Preferred Stock Amount |
Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Treasury Stock |
Non- controlling Interest |
Total |
||||||||||||||||||||||||
Balance at December 31, 2019 |
( |
) |
( |
) |
||||||||||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||
Other comprehensive gain |
||||||||||||||||||||||||||||||||
Issuances of non-vested restricted shares of common stock |
( |
) | — | |||||||||||||||||||||||||||||
Forfeitures of non-vested restricted shares of common stock |
( |
) | ( |
) | — | |||||||||||||||||||||||||||
Common stock contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
Stock issuances from exercise of stock options and employee stock purchase plan |
||||||||||||||||||||||||||||||||
Retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||||||
Cash dividends declared and paid on Common and Class B common stock, $ |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Adjustment to fair value of Common stock issued for N&S Supply of Fishkill, Inc. |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Distributions to non-controlling interest |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at December 31, 2020 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||
Years Ended December 31, |
||||||||||||
(In thousands) |
2020 |
2019 |
2018 |
|||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
||||||||||||
Share-based compensation |
||||||||||||
Non-cash contribution to 401(k) plan |
||||||||||||
Provision for doubtful accounts |
||||||||||||
Loss (gain) on sale of property and equipment |
( |
) | ||||||||||
Deferred income tax provision |
||||||||||||
Other income from investment in unconsolidated entity |
( |
) | ( |
) | ( |
) | ||||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||||||
Accounts receivable |
( |
) | ( |
) | ||||||||
Inventories, net |
( |
) | ( |
) | ||||||||
Accounts payable and other liabilities |
( |
) | ||||||||||
Other, net |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
||||||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities: |
||||||||||||
Capital expenditures |
( |
) | ( |
) | ( |
) | ||||||
Business acquisitions, net of cash acquired |
— | ( |
) | ( |
) | |||||||
Investment in unconsolidated entity |
— | ( |
) | ( |
) | |||||||
Proceeds from sale of property and equipment |
||||||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities: |
||||||||||||
Dividends on Common and Class B common stock |
( |
) | ( |
) | ( |
) | ||||||
Net (repayments) proceeds under current revolving credit agreement |
( |
) | ||||||||||
Distributions to non-controlling interest |
( |
) | ( |
) | ( |
) | ||||||
Repurchases of common stock to satisfy employee withholding tax obligations |
( |
) | ( |
) | ( |
) | ||||||
Net (repayments) proceeds of other long-term obligations |
( |
) | ( |
) | ||||||||
Payment of fees related to revolving credit agreement |
( |
) | — | ( |
) | |||||||
Purchase of additional ownership from non-controlling interest |
— | ( |
) | — | ||||||||
Net repayments under prior revolving credit agreement |
— | — | ( |
) | ||||||||
Proceeds from non-controlling interest for investment in unconsolidated entity |
— | |||||||||||
Proceeds from non-controlling interest for investment in Peirce-Phelps, Inc. |
— | — | ||||||||||
Net proceeds from issuances of common stock |
||||||||||||
|
|
|
|
|
|
|||||||
Net cash used in financing activities |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Effect of foreign exchange rate changes on cash and cash equivalents |
( |
) | ||||||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||||||
Cash and cash equivalents at beginning of year |
||||||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at end of year |
$ | $ | $ | |||||||||
|
|
|
|
|
|
Supplemental cash flow information (Note 22) |
Level 1 |
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2 |
Observable inputs other than Level 1 prices such as quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; or model-driven valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 |
Unobservable inputs for the asset or liability. These inputs reflect our own assumptions about the assumptions a market participant would use in pricing the asset or liability. |
Years Ended December 31, |
2020 |
2019 |
||||||
Lease cost |
$ |
$ | ||||||
Short-term lease cost |
||||||||
Variable lease cost |
||||||||
Sublease income |
( |
) |
( |
) | ||||
Total operating lease cost |
$ |
$ | ||||||
December 31, |
2020 |
2019 |
||||||
ROU assets |
$ |
$ | ||||||
Current portion of operating lease liabilities |
$ |
$ | ||||||
Operating lease liabilities |
||||||||
Total operating lease liabilities |
$ |
$ | ||||||
Weighted Average Remaining Lease Term (in years) |
||||||||
Weighted Average Discount Rate |
% |
% |
Years Ended December 31, |
2020 |
2019 |
||||||
Operating cash flows for the measurement of operating lease liabilities |
$ |
$ | ||||||
Operating lease ROU assets obtained in exchange for operating lease obligations |
$ |
$ |
2021 |
$ | |||
2022 |
||||
2023 |
||||
2024 |
||||
2025 |
||||
Thereafter |
||||
Total lease payments |
||||
Less imputed interest |
||||
Total lease liability |
$ |
|||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Primary Geographical Regions: |
||||||||||||
United States |
$ |
$ | $ | |||||||||
Canada |
||||||||||||
Latin America and the Caribbean |
||||||||||||
$ |
$ | $ | ||||||||||
Major Product Lines: |
||||||||||||
HVAC equipment |
% |
% | % | |||||||||
Other HVAC products |
% |
% | % | |||||||||
Commercial refrigeration products |
% |
% | % | |||||||||
% |
% | % | ||||||||||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Basic Earnings per Share: |
||||||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | $ | |||||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock |
||||||||||||
Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | $ | |||||||||
Weighted-average common shares outstanding - Basic |
||||||||||||
Basic earnings per share for Common and Class B common stock |
$ |
$ | $ | |||||||||
Allocation of earnings for Basic: |
||||||||||||
Common stock |
$ |
$ | $ | |||||||||
Class B common stock |
||||||||||||
$ |
$ | $ | ||||||||||
Diluted Earnings per Share: |
||||||||||||
Net income attributable to Watsco, Inc. shareholders |
$ |
$ | $ | |||||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock |
||||||||||||
Earnings allocated to Watsco, Inc. shareholders |
$ |
$ | $ | |||||||||
Weighted-average common shares outstanding - Basic |
||||||||||||
Effect of dilutive stock options |
||||||||||||
Weighted-average common shares outstanding - Diluted |
||||||||||||
Diluted earnings per share for Common and Class B common stock |
$ |
$ | $ | |||||||||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Foreign currency translation adjustment |
$ |
$ | $ | ( |
) | |||||||
Unrealized gain (loss) on cash flow hedging instruments |
( |
) | ||||||||||
Income tax (expense) benefit |
( |
) |
( |
) | ||||||||
Unrealized gain (loss) on cash flow hedging instruments, net of tax |
( |
) | ||||||||||
Reclassification of gain on cash flow hedging instruments into earnings |
( |
) |
( |
) | ( |
) | ||||||
Income tax expense |
||||||||||||
Reclassification of gain on cash flow hedging instruments into earnings, net of tax |
( |
) |
( |
) | ( |
) | ||||||
Other comprehensive income (loss) |
$ |
$ | $ | ( |
) | |||||||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Foreign currency translation adjustment: |
||||||||||||
Beginning balance |
$ |
( |
) |
$ | ( |
) | $ | ( |
) | |||
Current period other comprehensive income (loss) |
( |
) | ||||||||||
Ending balance |
( |
) |
( |
) | ( |
) | ||||||
Cash flow hedging instruments: |
||||||||||||
Beginning balance |
( |
) |
( |
) | ||||||||
Current period other comprehensive income (loss) |
( |
) | ||||||||||
Reclassification adjustment |
( |
) |
( |
) | ( |
) | ||||||
Ending balance |
( |
) |
( |
) | ||||||||
Equity securities: |
||||||||||||
Beginning balance |
— |
— |
( |
) | ||||||||
Cumulative-effect adjustment to retained earnings |
— |
— |
||||||||||
Ending balance |
||||||||||||
Accumulated other comprehensive loss, net of tax |
$ |
( |
) |
$ | ( |
) | $ | ( |
) | |||
December 31, |
2020 |
2019 |
||||||
Land |
$ |
$ | ||||||
Buildings and improvements |
||||||||
Machinery, vehicles , and equipment |
||||||||
Computer hardware and software |
||||||||
Furniture and fixtures |
||||||||
|
|
|
|
|||||
Accumulated depreciation and amortization |
( |
) |
( |
) | ||||
|
|
|
|
|||||
$ |
$ | |||||||
|
|
|
|
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Current: |
||||||||||||
U.S. Federal |
$ |
$ | $ | |||||||||
State |
||||||||||||
Foreign |
||||||||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
U.S. Federal |
||||||||||||
State |
||||||||||||
Foreign |
( |
) |
( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ |
$ | $ | |||||||||
|
|
|
|
|
|
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
U.S. federal statutory rate |
% |
% | % | |||||||||
State income taxes, net of federal benefit and other |
||||||||||||
Excess tax benefits from share-based compensation |
( |
) |
( |
) | ( |
) | ||||||
Tax effects on foreign income |
||||||||||||
GILTI |
— | ( |
) | |||||||||
Tax credits and other |
( |
) |
( |
) | — | |||||||
Repatriation transition tax |
— | — | ( |
) | ||||||||
Deferred tax impact of enacted tax rate changes |
— | — | ||||||||||
|
|
|
|
|
|
|||||||
Effective income tax rate attributable to Watsco, Inc. |
||||||||||||
Taxes attributable to non-controlling interest |
( |
) |
( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Effective income tax rate |
% |
% | % | |||||||||
|
|
|
|
|
|
December 31, |
2020 |
2019 |
||||||
Deferred tax assets: |
||||||||
Share-based compensation |
$ |
$ | ||||||
Capitalized inventory costs and inventory reserves |
||||||||
Allowance for doubtful accounts |
||||||||
Self-insurance reserves |
||||||||
Other |
||||||||
Net operating loss carryforwards |
||||||||
|
|
|
|
|||||
Valuation allowance |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Total deferred tax assets |
||||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Deductible goodwill |
( |
) |
( |
) | ||||
Depreciation |
( |
) |
( |
) | ||||
Other |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Total deferred tax liabilities |
( |
) |
( |
) | ||||
|
|
|
|
|||||
Net deferred tax liabilities (1) |
$ |
( |
) |
$ | ( |
) | ||
|
|
|
|
(1) | Net deferred tax liabilities have been included in the consolidated balance sheets in deferred income taxes and other liabilities. |
Balance at December 31, 2017 |
$ | |||
Additions based on tax positions related to the current year |
||||
Reductions due to lapse of applicable statute of limitations |
( |
) | ||
|
|
|||
Balance at December 31, 2018 |
||||
Additions based on tax positions related to the current year |
||||
Reductions due to lapse of applicable statute of limitations |
( |
) | ||
|
|
|||
Balance at December 31, 2019 |
||||
Additions based on tax positions related to the current year |
||||
Reductions due to lapse of applicable statute of limitations |
( |
) | ||
|
|
|||
Balance at December 31, 2020 |
$ |
|||
|
|
Options |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value |
|||||||||||||
Options outstanding at December 31, 2019 |
$ | |||||||||||||||
Granted |
||||||||||||||||
Exercised |
( |
) | ||||||||||||||
Forfeited |
( |
) | ||||||||||||||
Options outstanding at December 31, 2020 |
$ |
$ |
||||||||||||||
Options exercisable at December 31, 2020 |
$ |
$ |
||||||||||||||
Shares |
Weighted- Average Grant Date Fair Value |
|||||||
Non-vested restricted stock outstanding at December 31, 2019 |
$ | |||||||
Granted |
||||||||
Vested |
( |
) | ||||||
Forfeited |
( |
) | ||||||
Non-vested restricted stock outstanding at December 31, 2020 |
$ |
|||||||
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Expected term in years |
||||||||||||
Risk-free interest rate |
% |
% | % | |||||||||
Expected volatility |
% |
% | % | |||||||||
Expected dividend yield |
% |
% | % | |||||||||
Grant date fair value |
$ |
$ | $ |
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Stock options |
$ |
$ | $ | |||||||||
Non-vested restricted stock |
||||||||||||
Share-based compensation expense |
$ |
$ | $ | |||||||||
Cash and cash equivalents |
$ | |||
Accounts receivable |
||||
Inventories |
||||
Other current assets |
||||
Property and equipment |
||||
Operating lease ROU assets |
||||
Goodwill |
||||
Intangibles |
||||
Other assets |
||||
Accounts payable |
( |
) | ||
Accrued expenses and other current liabilities |
( |
) | ||
Operating lease liabilities, net of current portion |
( |
) | ||
Total |
$ | |||
Balance at December 31, 2018 |
$ | |||
Acquired goodwill |
||||
Foreign currency translation adjustment |
||||
Balance at December 31, 2019 |
||||
Acquired goodwill |
||||
Foreign currency translation adjustment |
||||
Balance at December 31, 2020 |
$ |
|||
December 31, |
Estimated Useful Lives |
2020 |
2019 |
|||||||||
Indefinite lived intangible assets - Trade names, trademarks , and distribution rights |
$ |
$ | ||||||||||
Finite lived intangible assets: |
||||||||||||
Customer relationships |
||||||||||||
Patented and unpatented technology |
||||||||||||
Trade name |
||||||||||||
Accumulated amortization |
( |
) |
( |
) | ||||||||
Finite lived intangible assets, net |
||||||||||||
$ |
$ | |||||||||||
2021 |
$ | |||
2022 |
$ | |||
2023 |
$ | |||
2024 |
$ | |||
2025 |
$ |
Years Ended December 31, |
2020 |
2019 |
||||||
Gain (loss) recorded in accumulated other comprehensive loss |
$ |
$ | ( |
) | ||||
Gain reclassified from accumulated other comprehensive loss into earnings |
$ |
( |
) |
$ | ( |
) |
Asset Derivatives |
Liability Derivatives |
|||||||||||||||
December 31, |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Derivatives designated as hedging instruments |
$ |
$ | — | $ |
$ | |||||||||||
Derivatives not designated as hedging instruments |
— | |||||||||||||||
Total derivative instruments |
$ |
$ | — | $ |
$ | |||||||||||
Total |
Fair Value Measurements at December 31, 2020 Using |
|||||||||||||||||
Balance Sheet Location |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||
Assets: |
||||||||||||||||||
Equity securities |
Other assets |
$ |
$ |
— | — | |||||||||||||
Liabilities: |
||||||||||||||||||
Derivative financial instruments |
Accrued expenses and other current liabilities |
$ |
— |
$ |
— |
Total |
Fair Value Measurements at December 31, 2019 Using |
||||||||||||||||||
Balance Sheet Location |
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||
Assets: |
|||||||||||||||||||
Equity securities |
Other assets |
$ | $ | — | — | ||||||||||||||
Private equities |
Other assets |
$ |
— |
— |
$ |
||||||||||||||
Liabilities: |
|||||||||||||||||||
Derivative financial instruments |
Accrued expenses and other current liabilities |
$ | — | $ | — |
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Revenues: |
||||||||||||
United States |
$ |
$ |
$ |
|||||||||
Canada |
||||||||||||
Latin America and the Caribbean |
||||||||||||
Total revenues |
$ |
$ | $ | |||||||||
December 31, |
2020 |
2019 |
||||||
Long-Lived Assets: |
||||||||
United States |
$ |
$ |
||||||
Canada |
||||||||
Latin America and the Caribbean |
||||||||
Total long-lived assets |
$ |
$ |
Years Ended December 31, |
2020 |
2019 |
2018 |
|||||||||
Interest paid |
$ |
$ | $ | |||||||||
Income taxes net of refunds |
$ |
$ | $ | |||||||||
Common stock issued for N&S Supply of Fishkill, Inc. |
$ |
( |
) |
$ | — | |||||||
Common stock issued for Peirce-Phelps, Inc. |
— | $ | — | |||||||||
Common stock issued for Dunphey & Associates Supply Co., Inc. |
— | $ | — | |||||||||
Common stock issued for Alert Labs, Inc. |
— | — | $ |
(In thousands, except per share data) |
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
Total |
|||||||||||||||
Year Ended December 31, 2020 |
||||||||||||||||||||
Revenues (1) |
$ | $ | $ | $ | $ | |||||||||||||||
Gross profit |
$ | $ | $ | $ | $ | |||||||||||||||
Net income attributable to Watsco, Inc. |
$ | $ | $ | $ | $ | |||||||||||||||
Earnings per share for Common and Class B common stock (2): |
||||||||||||||||||||
Basic |
$ | $ | $ | $ | $ | |||||||||||||||
Diluted |
$ | $ | $ | $ | $ | |||||||||||||||
Year Ended December 31, 2019 |
||||||||||||||||||||
Revenues (1) |
$ | $ | $ | $ | $ | |||||||||||||||
Gross profit |
$ | $ | $ | $ | $ | |||||||||||||||
Net income attributable to Watsco, Inc. |
$ | $ | $ | $ | $ | |||||||||||||||
Earnings per share for Common and Class B common stock (2): |
||||||||||||||||||||
Basic |
$ | $ | $ | $ | $ | |||||||||||||||
Diluted |
$ | $ | $ | $ | $ | |||||||||||||||
(1) | Sales of residential central air conditioners, heating equipment and parts and supplies are seasonal. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is usually highest in the first and fourth quarters. Demand related to the new construction sectors throughout most of the markets is fairly evenly distributed throughout the year except for dependence on housing completions and related weather and economic conditions. |
(2) | Quarterly and year-to-date |