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What changed in WATSCO INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of WATSCO INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+106 added−120 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in WATSCO INC's 2023 10-K

106 paragraphs added · 120 removed · 93 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

59 edited+11 added−8 removed60 unchanged
Biggest changeBased on data published in the September 2022 IBIS World Industry Report for Heating and Air Conditioning Contractors in the U.S. and other available data, we estimate that the annual market on an installed basis for residential central air conditioning, heating, and refrigeration equipment, and related parts and supplies is approximately $123.0 billion.
Biggest changeThe estimated annual market on an installed basis, which adds the contractor’s value to the market size, for residential HVAC/R products is approximately $126.0 billion according to the November 2023 IBIS World Industry Report for Heating and Air Conditioning Contractors in the U.S.
We believe that our private-label branded products complement our existing product offerings at selected locations, based on customer needs and the particular market position and price of these products. 5 Table of Contents Acquisition Strategy We focus on acquiring and investing in businesses that either complement our current presence in existing markets or establish a presence in new geographic markets.
We believe that our private-label branded products complement our existing product offerings at selected locations, based on customer needs and the particular market position and price of these products. 5 Table of Contents Acquisition Strategy We focus on acquiring and investing in businesses that either complement our presence in existing markets or establish a presence in new geographic markets.
Our commitment includes providing equal access to, and participation in, employment and advancement opportunities without regard to race, color, religion, national origin, age, disability, veteran or military status, pregnancy status, sex, gender identity, sexual orientation, or marital status. Diverse teams facilitate contributions from people of different backgrounds and varied points of view.
Our commitment includes providing equal access to, and participation in, employment and advancement opportunities without regard to race, color, religion, national origin, age, disability, veteran or military status, pregnancy status, sex, gender identity, sexual orientation, or marital status. Diverse teams facilitate contributions from people of different backgrounds, experiences, and varied points of view.
Product Line Expansion We actively seek new or expanded territories of distribution from our key equipment suppliers. We continually evaluate new parts and supply products to support equipment sales and further enhance service to our customers. This initiative includes increasing our product offering with existing vendors and identifying new product opportunities through traditional and non-traditional supply channels.
Product Line Expansion We actively seek new and expanded territories of distribution from our key equipment suppliers. We continually evaluate new parts and supply products to support equipment sales and further enhance service to our customers. This initiative includes increasing our product offering with existing vendors and identifying new product opportunities through traditional and non-traditional supply channels.
Certain general and administrative expenses are targeted for cost savings by leveraging the overall business volume and improving operating efficiencies. Human Capital Management Employee Population As the largest distributor of HVAC/R equipment and related parts and supplies in North America, we have a wide variety of employees.
Certain general and administrative expenses are targeted for cost savings by leveraging the overall business volume and improving operating efficiencies. Human Capital Management Employee Population and Turnover As the largest distributor of HVAC/R equipment and related parts and supplies in North America, we have a wide variety of employees.
ITEM 1. BUSINESS General Watsco, Inc. and its subsidiaries (collectively, “Watsco,” or “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.
ITEM 1. BUSINESS General Watsco, Inc. and its subsidiaries (collectively, “Watsco,” the “Company”, or “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.
We believe that we operate our business in compliance with all applicable federal, state and local laws, and regulations. Our industry and business are also subject to United States Department of Energy (“DOE”) standards related to the minimum required efficiency levels of residential central air conditioning systems and heat pumps.
We believe that we operate our business in substantial compliance with all applicable federal, state and local laws, and regulations. Our industry and business are also subject to United States Department of Energy (“DOE”) standards related to the minimum required efficiency levels of residential central air conditioning systems and heat pumps.
We maintain a specialized staff at our corporate headquarters that provides functional support for our subsidiaries’ growth strategies in their respective markets. Such functional support staff includes specialists in finance, accounting, product procurement, information technology, treasury and working capital management, tax planning, risk management, and safety.
We maintain a specialized staff at our corporate headquarters that provides functional support for our subsidiaries’ growth strategies in their respective markets. Such functional support staff includes specialists in finance, accounting, product procurement, information technology, treasury and working capital management, tax planning, risk management, legal, and safety.
In addition, regulatory mandates will periodically increase the required minimum SEER, thus providing a catalyst for greater sales of higher-efficiency systems. We offer a broad variety of systems that operate above the minimum SEER standards, ranging from base-level efficiency to systems that exceed 20 SEER.
In addition, regulatory mandates will likely periodically increase the required minimum SEER, thus providing a catalyst for greater sales of higher-efficiency systems. We offer a broad variety of systems that operate above the minimum SEER standards, ranging from base-level efficiency to systems that exceed 20 SEER.
As consumers replace HVAC systems with new, higher-efficiency systems, homeowners will consume less energy, save costs, and reduce their carbon footprint. 12 Table of Contents The sale of high-efficiency systems has long been a focus of ours, and we have invested in tools and technology intended to capture an increasingly richer sales mix over time.
As consumers replace HVAC systems with new, higher-efficiency systems, homeowners will consume less energy, save costs, and reduce their carbon footprints. 12 Table of Contents The sale of high-efficiency systems has long been a focus of ours, and we have invested in tools and technology intended to capture an increasingly richer sales mix over time.
Our revenues in HVAC/R distribution have increased from $64.1 million in 1989 to $7.3 billion in 2022, resulting from our strategic acquisition of companies with established market positions and subsequent building of revenues and profit through a combination of additional locations, introduction of new products, and other initiatives.
Our revenues in HVAC/R distribution have increased from $64.1 million in 1989 to $7.3 billion in 2023, resulting from our strategic acquisition of companies with established market positions and subsequent building of revenues and profit through a combination of additional locations, introduction of new products, and other initiatives.
Air conditioning and heating equipment is manufactured primarily by seven major companies that together account for approximately 90% of all units shipped in the United States each year. These companies are Carrier Global Corporation (“Carrier”); Daikin Comfort Technologies North America, Inc.
Air conditioning and heating equipment is manufactured primarily by eight major companies that together account for approximately 90% of all units shipped in the United States each year. These companies are Carrier Global Corporation (“Carrier”); Daikin Comfort Technologies North America, Inc.
We believe that our restricted stock program is unique because an employee’s restricted share grants generally vest entirely and only at the end of his or her career (age 62 or later) and, prior to retirement, these grants remain subject to significant risk of forfeiture. 6 Table of Contents Talent Development Our culture celebrates talent sharing, career development, and agility across the Company.
We believe that our restricted stock program is unique because an employee’s restricted share grants generally vest entirely and only at the end of his or her career (age 62 or later) and, prior to retirement, these grants remain subject to significant risk of forfeiture. Talent Development Our culture celebrates talent sharing, career development, and agility across the Company.
These laws and regulations include the Clean Air Act, relating to minimum energy efficiency standards of HVAC systems, and the production, servicing, and disposal of more environmentally friendly refrigerants used in such systems, including those established by the Kigali Amendment to the 11 Table of Contents Montreal Protocol concerning the phase-down of the production of HFC-based refrigerants for use in new equipment.
These laws and regulations include the Clean Air Act, relating to minimum energy efficiency standards of HVAC systems, and the production, servicing, and disposal of more environmentally friendly refrigerants used in such systems, including those established by the Kigali Amendment to the Montreal Protocol concerning the phase-down of the production of HFC-based refrigerants for use in new equipment.
The business and affairs of the joint ventures are controlled, directed, and managed exclusively by Carrier Enterprise I’s, Carrier Enterprise II’s, Carrier Enterprise III’s, CIAC, and TEC’s respective boards of directors (the “Boards”) pursuant to related operating agreements.
The business and affairs of the joint ventures are controlled, directed, and managed exclusively by Carrier Enterprise I’s, Carrier Enterprise II’s, Carrier Enterprise III’s, CIAC’s, and TEC’s respective boards of directors (the “Boards”) pursuant to related operating agreements.
As such, replacing older, less efficient HVAC systems with higher efficiency systems is one of the most meaningful steps homeowners can take to reduce their electricity costs and carbon footprint.
As such, replacing older, less efficient HVAC systems with higher efficiency systems is one of the most meaningful steps homeowners can take to reduce their electricity costs and carbon footprints.
The higher the SEER, the more efficient the HVAC equipment. Beginning in 2023, the minimum efficiency level for residential HVAC systems under 45,000 BTUs is 14 SEER in the North and 15 SEER in the Southeast and Southwest.
The higher the SEER, the more efficient the HVAC equipment. Beginning in 2023, the minimum efficiency level for residential HVAC systems under 45,000 BTUs became 14 SEER in the North and 15 SEER in the Southeast and Southwest.
The “build” component of the strategy has focused on encouraging growth at acquired companies, by 4 Table of Contents adding products and locations to better serve customers, investing in scalable technologies, and exchanging ideas and business concepts amongst leadership teams.
The “build” component of the strategy has focused on encouraging growth at acquired companies, by adding products and locations to better serve customers, investing in scalable technologies, and exchanging ideas and business concepts amongst leadership teams.
At December 31, 2022, we operated from 673 locations in 42 U.S. 3 Table of Contents States, Canada, Mexico and Puerto Rico with additional market coverage on an export basis to portions of Latin America and the Caribbean, through which we serve more than 120,000 active contractors and dealers that service the replacement and new construction markets.
At December 31, 2023, we operated from 690 locations in 42 U.S. States, Canada, Mexico and Puerto Rico with additional market coverage on an export basis to portions 3 Table of Contents of Latin America and the Caribbean, through which we serve more than 125,000 active contractors and dealers that service the replacement and new construction markets.
According to data published by the Energy Information Administration in May 2022 there are approximately 102 million central air conditioning and heating systems installed in the United States that have been in service for more than 10 years.
According to data published by the Energy Information Administration in March 2023, there are approximately 102 million central air conditioning and heating systems installed in the United States that have been in service for more than 10 years.
These markets have been a strategic focus of ours given their size, the reliance by homeowners and businesses on HVAC/R products to maintain a comfortable indoor environment, and the population growth in these areas over the last 40 years, which has led to a substantial installed base requiring replacement, a shorter useful life for equipment given the significant hours of operation, and the focus by electrical utilities on consumer incentives designed to promote replacement of HVAC/R equipment in an effort to improve energy efficiency. 8 Table of Contents Markets The table below identifies the number of our stores by location as of December 31, 2022: Florida 104 Texas 87 North Carolina 49 California 37 Georgia 34 Louisiana 34 South Carolina 33 Virginia 26 Tennessee 24 Pennsylvania 20 Illinois 17 New Jersey 16 New York 16 Alabama 10 Arizona 9 Massachusetts 9 Mississippi 9 Missouri 9 Connecticut 7 Kansas 7 Maryland 7 Indiana 5 Oklahoma 5 Utah 5 Arkansas 4 Minnesota 3 West Virginia 3 Iowa 2 Kentucky 2 Maine 2 Nebraska 2 Nevada 2 New Hampshire 2 South Dakota 2 Wisconsin 2 Colorado 1 Delaware 1 Michigan 1 New Mexico 1 North Dakota 1 Rhode Island 1 Vermont 1 United States 612 Canada 36 Mexico 12 Puerto Rico 13 Total 673 Joint Ventures with Carrier Global Corporation In 2009, we formed a joint venture with Carrier, which we refer to as Carrier Enterprise I, in which Carrier contributed company-owned locations in the Sun Belt states and Puerto Rico, and its export division in Miami, Florida, and we contributed certain locations that distributed Carrier products.
These markets have been a strategic focus of ours given their size, the reliance by homeowners and businesses on HVAC/R products to maintain a comfortable indoor environment, and the population growth in these areas over the last 40 years, which has led to a substantial installed base requiring replacement, a shorter useful life for equipment given the significant hours of operation, and the focus by electrical utilities on consumer incentives designed to promote replacement of HVAC/R equipment in an effort to improve energy efficiency. 8 Table of Contents Markets The table below identifies the number of our stores by location as of December 31, 2023: Florida 104 Texas 87 North Carolina 50 South Carolina 48 California 36 Georgia 34 Louisiana 34 Virginia 26 Tennessee 23 Pennsylvania 20 New York 19 Illinois 17 New Jersey 15 Alabama 10 Arizona 9 Massachusetts 9 Mississippi 9 Missouri 9 Connecticut 7 Kansas 7 Maryland 6 Indiana 5 Oklahoma 5 Utah 5 Arkansas 4 Minnesota 3 Nevada 3 West Virginia 3 Iowa 2 Kentucky 2 Maine 2 Nebraska 2 New Hampshire 2 South Dakota 2 Wisconsin 2 Colorado 1 Delaware 1 Michigan 1 New Mexico 1 North Dakota 1 Rhode Island 1 Vermont 1 United States 628 Canada 36 Mexico 11 Puerto Rico 15 Total 690 9 Table of Contents Joint Ventures with Carrier Global Corporation In 2009, we formed a joint venture with Carrier, which we refer to as Carrier Enterprise I, in which Carrier contributed company-owned locations in the Sun Belt states and Puerto Rico, and its export division in Miami, Florida, and we contributed certain locations that distributed Carrier products.
Federal Tax Credits and State Incentives Demand for higher-efficiency products, such as variable-speed systems and heat pumps, is expected to benefit from the passage of the U.S. Inflation Reduction Act of 2022 (the “IRA”) in August 2022.
Federal Tax Credits and State Incentives Demand for higher-efficiency products, such as variable-speed systems and heat pumps, is expected to increase due to the passage of the U.S. Inflation Reduction Act of 2022 (the “IRA”) in August 2022.
These initiatives include OnCall Air ® , our digital sales platform and CreditForComfort ® , its companion consumer financing platform, among others.
These initiatives include OnCall Air ® , our digital sales platform and OnCall Air Finance+, its companion consumer financing platform, among others.
Accordingly, the majority of our distribution locations are in the Sun Belt, with the highest concentration in Florida and Texas.
Accordingly, most of our distribution locations are in the Sun Belt, with the highest concentration in Florida and Texas.
We currently serve more than 120,000 active contractors and dealers who service the replacement and new construction markets for residential and light commercial central air conditioning, heating, and refrigeration systems. No single customer in 2022, 2021, or 2020 represented more than 2% of our consolidated revenues.
We currently serve more than 125,000 active contractors and dealers who service the replacement and new construction markets for residential and commercial central air conditioning, heating, and refrigeration systems. No single customer in 2023, 2022, or 2021 represented more than 2% of our consolidated revenues.
Given the breadth of our employee base, we tailor our human capital management policies with a view to specific employee populations. As of December 31, 2022, we employed approximately 7,200 full-time and 75 part-time employees (approximately 7,275 total employees), substantially all of whom were non-union employees. Of these employees, approximately 8% were located in Canada and Mexico.
Given the breadth of our employee base, we tailor our human capital management policies with a view to specific employee populations. As of December 31, 2023, we employed approximately 7,350 full-time and 75 part-time employees (approximately 7,425 total employees), substantially all of whom were non-union employees. Of these employees, approximately 8% were located in Canada and Mexico.
(“Daikin”), a subsidiary of Daikin Industries, Ltd.; Rheem Manufacturing Company (“Rheem”); Trane Technologies plc (“Trane”); York International Corporation, a subsidiary of Johnson Controls International plc; Lennox International Inc. (“Lennox”); and Nortek Global HVAC, LLC, a subsidiary of Nortek, Inc.
(“Daikin”), a subsidiary of Daikin Industries, Ltd.; Rheem Manufacturing Company (“Rheem”); Trane Technologies plc (“Trane”); York International Corporation, a subsidiary of Johnson Controls International plc; Lennox International Inc. (“Lennox”); Mitsubishi Electric Trane HVAC US LLC (“Mitsubishi”); and Nortek Global HVAC, LLC, a subsidiary of Nortek, Inc.
For systems over 45,000 BTUs, the minimum efficiency level is 14 SEER in the North and 14.5 SEER in the Southeast and Southwest. Heat pump efficiency levels, which are measured by the equipment’s heating seasonal performance factor (“HSPF”), is 8.8 HSPF compared with the 8.2 HSPF required by the current standard for all three regions.
For systems over 45,000 BTUs, the minimum efficiency level is 14 SEER in the North and 14.5 SEER in the Southeast and Southwest. Heat pump efficiency levels, which are measured by the equipment’s heating seasonal performance factor (“HSPF”), became 8.8 HSPF compared with the 8.2 HSPF that had been required by the prior standard for all three regions.
Information contained on, or available through, our website is not incorporated by reference in, or made a part of, this report. Air Conditioning, Heating and Refrigeration Industry The HVAC/R distribution industry is highly fragmented with approximately 6,500 distribution companies.
Information contained on, or available through, our website is not incorporated by reference in, or made a part of, this report. Air Conditioning, Heating and Refrigeration Industry The HVAC/R distribution industry is highly fragmented.
Culture of Innovation & Technology Strategy In recent years, we have established a strong culture of innovation, whereby people, processes and technology have rapidly evolved to modernize and digitize our business.
Culture of Innovation & Technology Strategy We have established a strong culture of innovation, whereby people, processes and technology have evolved to modernize and digitize our business.
Based on estimates validated by independent sources, we averted an estimated 15.8 million metric tons of CO2e emissions from January 1, 2020 to December 31, 2022 through the sale of replacement residential HVAC systems at higher-efficiency standards – the equivalent of nearly 3.4 million passenger vehicles driven over the course of one year.
Based on estimates validated by independent sources, we averted an estimated 19.2 million metric tons of CO2e emissions from January 1, 2020 to December 31, 2023 through the sale of replacement residential HVAC systems at higher-efficiency standards – the equivalent of nearly 4.3 million gas powered vehicles driven over the course of one year.
We have also introduced private-label products as a means to obtain market share and grow revenues.
We have also introduced private-label products to obtain market share and grow revenues.
Since 1989, we have acquired 66 HVAC/R distribution businesses, some of which currently operate as primary operating subsidiaries. Other smaller acquired distributors have been integrated into or are under the management of our primary operating subsidiaries.
Since 1989, we have acquired 69 HVAC/R distribution businesses, some of which are now primary operating subsidiaries. Other smaller acquired distributors have been integrated into or are under the management of our primary operating subsidiaries.
Sales of commercial refrigeration products, which we currently source from approximately 140 vendors, accounted for 4% and 3% of our revenues in 2022 and 2021, respectively. Distribution and Sales At December 31, 2022, we operated from 673 locations, a vast majority of which are located in regions that we believe have demographic trends favorable to our business.
Sales of commercial refrigeration products, which we currently source from approximately 150 vendors, accounted for 4% of our revenues in both 2023 and 2022. Distribution and Sales At December 31, 2023, we operated from 690 locations, a vast majority of which are located in regions that we believe have demographic trends favorable to our business.
Our equity compensation plans are designed to promote long-term performance, as well as to create long-term employee retention, continuity of leadership, and an ownership culture whereby management and employees think and act as owners of the Company.
Approximately 130 employees received such equity awards in 2023. Our equity compensation plans are designed to promote long-term performance, as well as to create long-term employee retention, continuity of leadership, and an ownership culture whereby management and employees think and act as owners of the Company.
We have an 80% controlling interest in TEC, and Carrier has a 20% non-controlling interest. Combined, the joint ventures with Carrier represented 54% of our revenues in 2022. See Supplier Concentration in “Business Risk Factors” in Item 1A.
We have an 80% controlling interest in TEC, and Carrier has a 20% non-controlling interest. Combined, the joint ventures with Carrier represented 55% of our revenues in 2023. See Supplier Concentration and Supply Chain Risks in “Business Risk Factors” in Item 1A.
The Company’s top ten suppliers accounted for 84% of our purchases, including 60% from Carrier, and 8% from Rheem.
The Company’s top ten suppliers accounted for 86% of our purchases, including 65% from Carrier, and 8% from Rheem.
We have an 80% controlling interest in Carrier Enterprise I, and Carrier has a 20% non-controlling interest. In 2019, Carrier Enterprise I acquired substantially all of the HVAC assets and assumed certain of the liabilities of Peirce-Phelps, Inc., an HVAC distributor operating in Pennsylvania, New Jersey, and Delaware.
We have an 80% controlling interest in Carrier Enterprise I, and Carrier has a 20% non-controlling interest. In 2019, Carrier Enterprise I acquired substantially all of the HVAC assets and assumed certain of the liabilities of Peirce-Phelps, Inc., an HVAC distributor operating in Pennsylvania, New Jersey, and Delaware. The export division, Carrier InterAmerica Corporation (“CIAC”), redomesticated from the U.S.
In April 2021, we acquired certain assets and assumed certain liabilities comprising the HVAC distribution business of Temperature Equipment Corporation, an HVAC distributor operating from Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri and Wisconsin. We formed a new joint venture with Carrier, TEC Distribution LLC (“TEC”), that operates this business.
In 2021, we acquired certain assets and assumed certain liabilities comprising the HVAC distribution business of Temperature Equipment Corporation, one of Carrier’s independent distributors with locations in Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri and Wisconsin. We formed a new joint venture with Carrier, TEC Distribution LLC (“TEC”), that owns and operates this business.
Other than where such location-level restrictions apply, we may distribute the lines of other manufacturers’ air conditioning or heating equipment in other locations in the same territories. See Supplier Concentration in “Business Risk Factors” in Item 1A of this Annual Report on Form 10-K. Seasonality Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal.
Other than where such location-level restrictions apply, we may distribute the lines of other manufacturers’ air conditioning or heating equipment in other locations in the same territories. See Supplier Concentration and Supply Chain Risks in “Business Risk Factors” in Item 1A of this Annual Report on Form 10-K.
Each Board is composed of five directors, of whom three directors represent our controlling interest and two directors represent Carrier’s non-controlling interest.
The Boards are each composed of five directors, of whom three directors represent our controlling interest and two directors represent Carrier’s non-controlling interest.
Order Backlog Order backlog is not a material aspect of our business, and no material portion of our business is subject to government contracts. Government Regulations, Environmental, and Health and Safety Matters Our business is subject to federal, state and local laws, and regulations relating to the storage, handling, transportation, and release of hazardous materials into the environment.
Government Regulations, Environmental, and Health and Safety Matters Our business is subject to federal, state and local laws, and regulations relating to the storage, handling, transportation, and release of hazardous materials into the environment.
In December 2020, the American Innovation and Manufacturing Act of 2020 (the “AIM Act”) was enacted, which gave the United States Environmental Protection Agency (“EPA”) regulatory authority to address hydrofluorocarbon (“HFC”) refrigerants.
We completed the transition of our inventory to the higher SEER products during 2023. In December 2020, the American Innovation and Manufacturing Act of 2020 (the “AIM Act”) was enacted, which gave the United States Environmental Protection Agency (“EPA”) regulatory authority to address hydrofluorocarbon (“HFC”) refrigerants.
Sales of HVAC equipment, which we currently source from approximately 20 vendors, accounted for 68% and 69% of our revenues for the years ended December 31, 2022 and 2021, respectively. Sales of other HVAC products, which we currently source from approximately 1,300 vendors, comprised 28% of our revenues in 2022 and 2021.
Sales of HVAC equipment, which we currently source from approximately 20 vendors, accounted for 69% and 68% of our revenues in 2023 and 2022, respectively. Sales of other HVAC products, which we currently source from approximately 1,400 vendors, comprised 27% and 28% of our revenues in 2023 and 2022, respectively.
Many installed units are currently reaching the end of their useful lives, which we believe long-term provides a growing and stable replacement market. Additionally, we sell a variety of non-equipment products including parts, ductwork, air movement products, insulation, tools, installation supplies, thermostats, and air quality products. We distribute products manufactured by Flexible Technologies, Inc. (“Flexible Technologies”), Resideo Technologies, Inc.
Many installed units operate well below current minimum efficiency standards and are currently reaching the end of their useful lives, which we believe long-term provides a growing and stable replacement market. Additionally, we sell a variety of non-equipment products including parts, ductwork, air movement products, insulation, tools, installation supplies, thermostats, and air quality products.
Competitive pressures or other factors could cause our products or services to lose market acceptance or result in significant price erosion, all of which would have a material adverse effect on our results of operations, cash flows, and liquidity.
Competitive pressures or other factors could cause our products or services to lose market acceptance or result in significant price erosion, all of which would have a material adverse effect on our results of operations, cash flows, and liquidity. 11 Table of Contents Order Backlog Order backlog is not a material aspect of our business, and no material portion of our business is subject to government contracts.
We maintain large inventories at each of our warehouse locations and either deliver products to customers using our trucks or third-party logistics providers, or we make products available for pick-up at the location nearest to the particular customer. We have approximately 1,200 salespeople, averaging 14 years of experience in the HVAC/R distribution industry.
We maintain large inventories at each of our warehouse locations and either deliver products to customers using our trucks or third-party logistics providers, or we make products available for pick-up at the location nearest to the particular customer.
In addition to salaries, commission programs, cash incentives, and stock-based equity plans, we also provide a 401(k) retirement plan with a company match, an employee stock purchase plan in which most of our employees may purchase our stock at a discount, healthcare and insurance benefits, health savings accounts, paid time off, and various services and tools to support our employees’ health and wellness.
In addition to salaries, commission programs, cash incentives, and stock-based equity plans, we also provide a 401(k) retirement plan with a company match, an employee stock purchase plan in which most of our employees may purchase our stock at a discount, healthcare and insurance benefits, health savings accounts, paid time off, and various services and tools to support our employees’ health and wellness. 6 Table of Contents Pay-for-Performance and Ownership Culture We maintain a culture that rewards performance of key leaders through stock-based equity plans, which include the granting of stock options and restricted stock based on individual merit and measures of performance.
We believe we compete successfully with other distributors primarily based on an experienced sales organization, strong service support, maintenance of well-stocked inventories, density of warehouse locations, high quality reputation, broad product lines, and the ability to foresee customer demand for new products.
We believe we compete successfully with other distributors primarily based on an experienced sales organization, strong service support, maintenance of well-stocked inventories, density of warehouse locations, high quality reputation, broad product lines, and the ability to foresee customer demand for new products. 10 Table of Contents Key Supplier Relationships Given our leadership position, Watsco represents a strategic business relationship to many of the leading manufacturers in our industry.
The markets we serve are as follows: % of Revenues for the Year Ended December 31, 2022 Number of Locations as of December 31, 2022 United States 91 % 612 Canada 5 % 36 Latin America and the Caribbean 4 % 25 Total 100 % 673 7 Table of Contents The largest market we serve is the United States, in which the most significant markets for HVAC/R products are in the Sun Belt states.
We have approximately 1,200 salespeople, averaging 11 years of experience in the HVAC/R distribution industry. 7 Table of Contents The markets we serve are as follows: % of Revenues for the Year Ended December 31, 2023 Number of Locations as of December 31, 2023 United States 90 % 628 Canada 5 % 36 Latin America and the Caribbean 5 % 26 Total 100 % 690 The largest market we serve is the United States, in which the most significant markets for HVAC/R products are in the Sun Belt states.
It is too early to determine the impact to our results of operations this transition will have; however, we expect a benefit from selling higher efficiency units, which sell at higher prices, as historically these changes have increased the cost to service and repair existing systems, which in turn influences a consumer’s decision to replace them.
As a result of this transition, we expect to benefit from selling units that contain more environmentally friendly refrigerants, which sell at higher prices, as historically these changes have increased the cost to service and repair existing systems, which in turn influences a consumer’s decision to replace them.
Further details, including qualifying products, specific programs, and other regulatory requirements contemplated by the IRA are being determined and are expected to be launched during 2023. Available Information Our website is at www.watsco.com . Our investor relations website is located at https://investors.watsco.com .
IRA details, including qualifying products, specific programs, states participating, and other regulatory requirements are still being finalized. Available Information Our website is at www.watsco.com . Our investor relations website is located at https://investors.watsco.com .
To maintain brand-name recognition, HVAC/R equipment manufacturers provide national advertising and participate with us in cooperative advertising programs and promotional incentives that are targeted to both dealers and end-users.
We believe the diversity of products that we sell, along with the manufacturers’ current product offerings, quality, marketability, and brand-name recognition, allow us to operate favorably relative to our competitors. To maintain brand-name recognition, HVAC/R equipment manufacturers provide national advertising and participate with us in cooperative advertising programs and promotional incentives that are targeted to both dealers and end-users.
Virgin Islands to Delaware in 2019, following which CIAC became a separate operating entity in which we have an 80% controlling interest and Carrier has a 20% non-controlling interest.
Virgin Islands to Delaware in 2019, following which CIAC became a separate operating entity in which we have an 80% controlling interest and Carrier has a 20% non-controlling interest. Carrier Enterprise I has a 38.4% ownership interest in Russell Sigler, Inc. (“RSI”), an HVAC distributor operating from 34 locations in the Western U.S.
Furthermore, profitability can be impacted favorably or unfavorably based on weather patterns, particularly during 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 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.
We distribute products manufactured by Copeland Corporation, LLC, a subsidiary of Emerson Electric Co. (“Emerson”), The Chemours Company (“Chemours”), Mueller Industries, Inc. (“Mueller”), and Welbilt, Inc. (“Welbilt”), among others. Culture and Business Strategy Watsco began its HVAC/R distribution strategy in 1989 and has grown by using a “buy and build” philosophy, resulting in substantial long-term growth in revenues and profits.
(“Welbilt”), among others. 4 Table of Contents Culture and Business Strategy Watsco began its HVAC/R distribution strategy in 1989 and has grown by using a “buy and build” philosophy, resulting in substantial long-term growth in revenues and profits.
(“Resideo”), Southwark Metal Mfg. Co. (“Southwark”), Johns Manville (“Johns Manville”), and Owens Corning Insulating Systems, LLC (“Owens Corning”), among others. We also sell products to the commercial refrigeration market. These products include condensing units, compressors, evaporators, valves, refrigerant, walk-in coolers, and ice machines for industrial and commercial applications.
We distribute products manufactured by Flexible Technologies, Inc. (“Flexible Technologies”), Resideo Technologies, Inc. (“Resideo”), Southwark Metal Mfg. Co. (“Southwark”), Johns Manville (“Johns Manville”), and Owens Corning Insulating Systems, LLC (“Owens Corning”), among others. We also sell products to the commercial refrigeration market.
Inclusive leadership leads to innovative solutions, and an inclusive environment is a critical foundation for us, as high-performing, engaged teams join together to help us implement our strategies. Compensation and Benefits We focus on attracting and retaining employees by providing compensation and benefits programs that are competitive within our industry, taking into account each job position’s location and responsibilities.
Compensation and Benefits We focus on attracting and retaining employees by providing compensation and benefits programs that are competitive within our industry, taking into account each job position’s location and responsibilities.
Key Supplier Relationships Given our leadership position, Watsco represents a strategic business relationship to many of the leading manufacturers in our industry. Significant relationships with HVAC/R equipment manufacturers include Carrier, Rheem, Daikin, Mitsubishi Electric Corporation, Gree Electric Appliances, Inc., Welbilt, Bosch Global, Trane, Lennox, and Midea Group.
Significant relationships with HVAC/R equipment manufacturers include Carrier, Rheem, Daikin, Mitsubishi, Gree Electric Appliances, Inc., Welbilt, Bosch Global, Trane, Lennox, and Midea Group. In addition, we have substantial relationships with manufacturers of non-equipment HVAC/R products, including Mueller, Flexible Technologies, Southwark, Resideo, DiversiTech Corp., Emerson, Johns Manville, Chemours, and Owens Corning.
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Additionally, we use independent contractors and temporary personnel in the normal course of business to supplement our workforce. Diversity and Inclusion We value and foster the diversity and inclusion of the people with whom we work.
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According to data published in the December 2023 IBIS World Industry Report for Heating and Air Conditioning Wholesaling in the U.S., the HVAC/R distribution industry has approximately 2,200 distribution companies with an aggregate estimated annual market size of $64.0 billion.
Removed
Pay-for-Performance and Ownership Culture We maintain a culture that rewards performance of key leaders through stock-based equity plans, which include the granting of stock options and restricted stock based on individual merit and measures of performance. Approximately 140 employees received such equity awards in 2022.
Added
These products include condensing units, compressors, evaporators, valves, refrigerant, walk-in coolers, and ice machines for industrial and commercial applications. We distribute products manufactured by Copeland Corporation, LLC, a subsidiary of Emerson Electric Co. (“Emerson”), The Chemours Company (“Chemours”), Mueller Industries, Inc. (“Mueller”), and Welbilt, Inc.
Removed
Carrier Enterprise I has a 38.1% ownership interest in Russell Sigler, Inc., an HVAC distributor operating from 35 locations in the Western U.S. 9 Table of Contents The export division of Carrier Enterprise I, Carrier InterAmerica Corporation (“CIAC”), redomesticated from the U.S.
Added
Additionally, we use independent contractors and temporary personnel in the normal course of business to supplement our workforce. We closely monitor employee turnover, utilizing exit interviews to gather pertinent information that we use to refine our retention strategies. The voluntary turnover rate for our U.S. employees in 2023, 2022, and 2021 was approximately 19%, 20%, and 19%, respectively.
Removed
In addition, we have substantial relationships with manufacturers of non-equipment HVAC/R products, including Mueller, Flexible Technologies, Southwark, Resideo, DiversiTech Corp., Emerson, Johns Manville, Chemours, and Owens Corning. 10 Table of Contents We believe the diversity of products that we sell, along with the manufacturers’ current product offerings, quality, marketability, and brand-name recognition, allow us to operate favorably relative to our competitors.
Added
We believe this rate is typical for a company of our size that employs a large hourly workforce such as ours. Diversity and Inclusion We value and foster the diversity and inclusion of the people with whom we work.
Removed
During 2014, the DOE established new rules for the manufacturing of motors used in residential furnaces with the purpose of increasing the energy efficiency of these motors, and, consequently, the furnaces in which they operate.
Added
Inclusive leadership leads to innovative solutions, and an inclusive environment is a critical foundation for us, as high-performing, engaged teams join together to help us implement our strategies. As of December 31, 2023, approximately 21% of our employees and 22% of our managers in the U.S. and Puerto Rico were women.
Removed
The mandate dictates that residential furnace fans manufactured in the United States on or after the effective date of July 3, 2019, must have a Fan Energy Rating (“FER”) value reduction of 12% or 46% in watts/cfm, depending on the type of furnace.
Added
RSI is Carrier’s second largest independent North American distributor and had sales of approximately $1.2 billion in 2023.
Removed
To meet these new standards, most manufacturers have replaced the permanent split capacitor blower motors in residential furnaces with electronic controlled motors. The transition of our inventory of residential furnaces to those meeting the updated FER standards was complete by the end of 2020.
Added
Seasonality 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 Summer and Winter selling seasons.
Removed
Our sales of higher-efficiency residential HVAC systems (those above base-level efficiency) grew 18% organically in 2022, outpacing the overall growth rate of 13% for residential HVAC equipment in the United States.
Added
Code of Ethics and Conduct The Board of Directors has adopted codes of ethics and conduct that are designed to ensure that our directors, officers, and employees are aware of their ethical responsibilities and avoid conduct that may pose risks to the Company.
Added
We maintain (i) an Employee Code of Business Ethics and Conduct that is applicable to all employees, and (ii) a Code of Conduct for Executives that is applicable to members of our Board of Directors, our executive officers, and other senior operating and financial personnel.
Added
Amendments to either code of conduct or any grant of a waiver requiring disclosure under applicable SEC rules will be disclosed on our website, www.watsco.com . There were no amendments to or waivers from either code of conduct in 2023.
Added
Oversight of investigations of known or potential violations under either code of conduct is the responsibility of the Audit Committee of the Board of Directors (the “Audit Committee”). To obtain copies of our Codes of Ethics and Conduct, please visit our investor relations website at https://investors.watsco.com under the section captioned “Governance.”

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

24 edited+2 added−17 removed41 unchanged
Biggest changeAdditionally, failure to comply with the United States Foreign Corrupt Practices Act could subject us to, among other things, penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, financial condition, and results of operations. 16 Table of Contents Risks Related to our Common Stock Class B Common Stock and Insider Ownership As of December 31, 2022, our directors and executive officers and entities affiliated with them owned: (i) Common stock representing 1% of the outstanding shares of Common stock and (ii) Class B common stock representing 88% of the outstanding shares of Class B common stock.
Biggest changeAdditionally, failure to comply with the United States Foreign Corrupt Practices Act could subject us to, among other things, penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, financial condition, and results of operations.
Future dividends will be declared and paid at the sole discretion of the Board of Directors and will depend upon such factors as cash flow generated by operations, profitability, financial condition, cash requirements, future prospects, and other factors deemed relevant by our Board of Directors.
Future dividends will be declared and paid at the sole discretion of the Board of Directors and will depend upon such factors as cash flow generated by operations, profitability, financial condition, cash requirements, prospects, and other factors deemed relevant by our Board of Directors.
The trading price of our common stock may be adversely affected due to a number of factors, most of which we cannot predict or control, such as the following: • fluctuations in our operating results; • a decision by the Board of Directors to reduce or eliminate cash dividends on our common stock; • changes in recommendations or earnings estimates by securities analysts; • general market conditions in our industry or in the economy as a whole; and • political instability, natural disasters, war and/or events of terrorism.
The trading price of our common stock may be adversely affected due to many factors, most of which we cannot predict or control, such as the following: • fluctuations in our operating results; • a decision by the Board of Directors to reduce or eliminate cash dividends on our common stock; • changes in recommendations or earnings estimates by securities analysts; • general market conditions in our industry or in the economy as a whole; and • political instability, natural disasters, war and/or events of terrorism.
Risks Related to Natural Disasters, Epidemics, or Other Unexpected Events The occurrence of one or more natural disasters, including those linked to climate change, power outages, or other unexpected events, including hurricanes, fires, earthquakes, volcanic eruptions, tsunamis, floods and other forms of severe weather, health epidemics, pandemics (including COVID-19) or other contagious outbreaks, conflicts, wars or terrorist acts, in the U.S. or in other countries in which we or our suppliers or customers operate could adversely affect our operations and financial performance.
Risks Related to Natural Disasters, Epidemics, or Other Unexpected Events The occurrence of one or more natural disasters, including those linked to climate change, power outages, or other unexpected events, including hurricanes, fires, earthquakes, volcanic eruptions, tsunamis, floods and other forms of severe weather, health epidemics, pandemics or other contagious outbreaks, conflicts, wars or terrorist acts, in the U.S. or in other countries in which we or our suppliers or customers operate could adversely affect our operations and financial performance.
Such measures could include reducing or eliminating dividend payments, deferring capital expenditures, and reducing or eliminating other discretionary uses of cash. A decline in economic conditions and lack of availability of business and consumer credit could have an adverse effect on our business and results of operations.
Such measures could include reducing or eliminating dividend payments, deferring capital expenditures, and reducing or eliminating other discretionary uses of cash. 15 Table of Contents A decline in economic conditions and lack of availability of business and consumer credit could have an adverse effect on our business and results of operations.
Volatility The market price of our common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common stock in spite of our operating performance.
Volatility The market price of our common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common stock despite our operating performance.
We have established security policies, processes and defenses designed to help identify and protect against intentional and unintentional misappropriation or corruption of our information technology systems and information and disruption of our operations.
We have established security policies, processes and defenses designed to help identify and protect against intentional and unintentional misappropriation 14 Table of Contents or corruption of our information technology systems and information and disruption of our operations.
ITEM 1A. RISK FACTORS Business Risk Factors Supplier Concentration and Supply Chain Risks The Company’s top ten suppliers accounted for 84% of our purchases during 2022, including 60% from Carrier, and 8% from Rheem. Carrier provides a diverse variety of brands of HVAC systems including, Carrier, Bryant, Payne, Tempstar, Heil, Comfortmaker and Grandaire, along with complimentary replacement parts.
ITEM 1A. RISK FACTORS Business Risk Factors Supplier Concentration and Supply Chain Risks The Company’s top ten suppliers accounted for 86% of our purchases during 2023, including 65% from Carrier and 8% from Rheem. Carrier provides a diverse variety of brands of HVAC systems including, Carrier, Bryant, Payne, Tempstar, Heil, Comfortmaker and Grandaire, along with complimentary replacement parts.
Additionally, our operations are materially dependent upon the continued market acceptance and quality of these manufacturers’ products and their ability to continue to manufacture products that are competitive and that comply with laws relating to environmental and efficiency standards.
Additionally, our operations are materially dependent upon the continued market acceptance and quality of these manufacturers’ products and their ability to continue to manufacture products that are competitive, that comply with laws relating to environmental and efficiency standards, and that keep up with shifting consumer preferences.
Our international sales and operations, as well as sourcing of products from suppliers with international operations, are also sensitive to changes in foreign national priorities, including government budgets, as well as political and economic instability. In addition, closures in China due to their zero-COVID policy may disrupt the operations of certain of our suppliers, which could negatively impact our business.
Our international sales and operations, as well as sourcing of products from suppliers with international operations, are also sensitive to changes in foreign national priorities, including government budgets, as well as political and economic instability. In addition, post-pandemic delays and closures in China may disrupt the operations of certain of our suppliers, which could negatively impact our business.
General Risk Factors Goodwill, Intangibles and Long-Lived Assets At December 31, 2022, goodwill, intangibles, and long-lived assets represented approximately 34% of our total assets. The recoverability of goodwill, indefinite lived intangibles, and long-lived assets is evaluated at least annually and when events or changes in circumstances indicate that the carrying amounts may not be recoverable.
Goodwill, Intangibles and Long-Lived Assets At December 31, 2023, goodwill, intangibles, and long-lived assets represented approximately 36% of our total assets. The recoverability of goodwill, indefinite lived intangibles, and long-lived assets is evaluated at least annually and when events or changes in circumstances indicate that the carrying amounts may not be recoverable.
If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline. 17 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
The occurrence of any of these events could also increase our insurance and other operating costs or impact our sales. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
The occurrence of any of these events could also increase our insurance and other operating costs or impact our sales.
The right of our Board of Directors to declare dividends, however, is subject to the availability of sufficient funds under Florida law to pay dividends.
The right of our Board of Directors to declare dividends, however, is subject to the availability of sufficient funds under Florida law to pay dividends. In addition, our ability to pay dividends depends on certain restrictions in our credit agreement.
In addition, our ability to pay dividends depends on certain restrictions in our credit agreement. 17 Table of Contents Securities Analyst Research and Reports The trading markets for our common stock rely in part on the research and reports that industry or financial analysts publish about us or our business or industry.
Securities Analyst Research and Reports The trading markets for our common stock rely in part on the research and reports that industry or financial analysts publish about us or our business or industry.
Disruptions in the credit and capital markets could adversely affect our ability to draw on our revolving credit agreement and may also adversely affect the determination of interest rates, particularly rates based on LIBOR, which is one of the base rates under our revolving credit agreement.
Access to funds under our line of credit is dependent on the ability of the syndicate banks to meet their respective funding commitments. Disruptions in the credit and capital markets could adversely affect our ability to draw on our revolving credit agreement and may also adversely affect the determination of interest rates.
Our inability to obtain products from one or more of these manufacturers or a decline in market acceptance of these manufacturers’ products could have a material adverse effect on our results of operations, cash flows, and liquidity.
Our inability to obtain products from one or more of these manufacturers or a decline in market acceptance of these manufacturers’ products could have a material adverse effect on our results of operations, cash flows, and liquidity. 13 Table of Contents Many HVAC equipment and component manufacturers, including Carrier and Rheem, source component parts from China and/or assemble a significant number of products for residential and light-commercial applications from Mexico.
Furthermore, profitability can be impacted favorably or unfavorably based on the severity or mildness of weather patterns during Summer or 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 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.
Foreign currency exchange rates and fluctuations may have an impact on transactions denominated in Canadian dollars and Mexican Pesos, and, therefore, could adversely affect our financial performance.
Foreign currency exchange rates and fluctuations may have an impact on transactions denominated in Canadian dollars and Mexican Pesos, and, therefore, could adversely affect our financial performance. Although we use foreign currency forward contracts to mitigate the impact of currency exchange rate movements, we do not currently hold any derivative contracts that hedge our foreign currency translational exposure.
These interests represent 55% of the aggregate combined voting power (including 53% beneficially owned by Albert H. Nahmad, Chairman and Chief Executive Officer (“CEO”), Aaron J. Nahmad, President, and Valerie Schimel, Director, who is the daughter of our Chairman and CEO, through shares owned by them and shares held by affiliated limited partnerships, various family trusts, and a charitable organization).
These interests represent 55% of the aggregate combined voting power (including 53% beneficially owned by Albert H. Nahmad, Chairman and Chief Executive Officer (“CEO”), Aaron J.
Risks Inherent in Acquisitions As part of our strategy, we intend to pursue additional acquisitions of complementary businesses, including through joint ventures and investments in unconsolidated entities.
Other than where such location-level restrictions apply, we may distribute other manufacturers’ lines of air conditioning or heating equipment in other locations in the same territories. Risks Inherent in Acquisitions As part of our strategy, we intend to pursue additional acquisitions of complementary businesses, including through joint ventures and investments in unconsolidated entities.
Such agreements are not subject to a stated term or expiration date. We also maintain other distribution agreements with various other suppliers, either on an exclusive or non-exclusive basis, for various terms ranging from one to ten years.
We also maintain other distribution agreements with various other suppliers, either on an exclusive or non-exclusive basis, for various terms ranging from one to ten years. Certain of the distribution agreements contain provisions that restrict or limit the sale of competitive products in the locations that sell such branded products.
Accordingly, our directors and executive officers collectively have the voting power to elect six members of our nine-person Board of Directors.
Nahmad, President (the son of our Chairman and CEO), and Valerie Schimel, Director (the daughter of our Chairman and CEO), through shares owned by them and shares held by affiliated limited partnerships, various family trusts, and a charitable foundation. Accordingly, our directors and executive officers collectively have the voting power to elect six members of our nine-person Board of Directors.
The continuing impact of COVID-19 on our business will depend on future developments; however, closures in China and/or Mexico may disrupt the operations of certain of our suppliers, which could negatively impact our business. 13 Table of Contents We maintain trade name and distribution agreements with Carrier and Rheem that provide us distribution rights on an exclusive basis in specified territories.
We maintain trade name and distribution agreements with Carrier and Rheem that provide us distribution rights on an exclusive basis in specified territories. Such agreements are not subject to a stated term or expiration date.
Removed
Many HVAC equipment and component manufacturers, including Carrier and Rheem, source component parts from China and/or assemble a significant number of products for residential and light-commercial applications from Mexico.
Added
Seasonality Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal, resulting in fluctuations in our revenue from quarter to quarter. Furthermore, profitability can be impacted favorably or unfavorably based on the severity or mildness of weather patterns during Summer or Winter selling seasons.
Removed
In addition, COVID-19, which surfaced in Wuhan, China in December 2019, resulted in increased travel restrictions and extended shutdown of certain businesses in the region.
Added
Moreover, litigation related to sustainability practices could result in potential operating expenses arising from fines, settlements, and legal costs, as well as reputational impacts. 16 Table of Contents Risks Related to our Common Stock Class B Common Stock and Insider Ownership As of December 31, 2023, our directors and executive officers and entities affiliated with them owned: (i) Common stock representing 1% of the outstanding shares of Common stock and (ii) Class B common stock representing 89% of the outstanding shares of Class B common stock.
Removed
Certain of the distribution agreements contain provisions that restrict or limit the sale of competitive products in the locations that sell such branded products. Other than where such location-level restrictions apply, we may distribute other manufacturers’ lines of air conditioning or heating equipment in other locations in the same territories.
Removed
Although we use foreign currency forward contracts to mitigate the impact of currency exchange rate movements, we do not currently hold any derivative contracts that hedge our foreign currency translational exposure. 14 Table of Contents Seasonality Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal, resulting in fluctuations in our revenue from quarter to quarter.
Removed
Access to funds under our line of credit is dependent on the ability of the syndicate banks to meet their respective funding commitments.
Removed
On March 5, 2021, the United Kingdom Financial Conduct Authority, which regulates LIBOR, confirmed that LIBOR will either cease to be provided by any administrator or will no longer be representative after June 30, 2023 for USD LIBOR reference rates. The U.S. Federal Reserve has selected the Secured Overnight Funding Rate (“SOFR”) as the preferred alternate rate to LIBOR.
Removed
Our revolving credit agreement provides that it may be amended to replace LIBOR with an alternate benchmark rate including SOFR.
Removed
SOFR is calculated differently from LIBOR and has inherent differences, including SOFR’s limited historical data and that LIBOR is an unsecured lending rate while SOFR is a secured lending rate, which could give rise to uncertainties and volatility in the benchmark rates.
Removed
While we continue to evaluate the potential impact of a transition to SOFR, these changes could result in interest obligations that are more than or do not otherwise correlate exactly over time with the payments that would have been made on such debt if LIBOR was available in its current form, including a potential increase in our overall interest expense.
Removed
COVID-19 Pandemic The COVID-19 pandemic has had, and could continue to have widespread, rapidly-evolving and unpredictable impacts on global financial markets and business practices. As conditions fluctuate, governments have responded by adjusting their restrictions and guidelines accordingly.
Removed
In light of the periodic resurgence in cases and the spread of variant strains of the virus, there remains uncertainty concerning the nature and extent of the continuing impact of the COVID-19 pandemic.
Removed
While the COVID-19 pandemic has subsided with the normalization of living with COVID-19 following the increase in 15 Table of Contents accessibility to COVID-19 vaccines and antiviral treatments, the full impact of the COVID-19 pandemic on our business, financial condition, and results of operations is uncertain and will continue to depend on future developments, such as the ultimate duration and scope of the pandemic, its impact on our employees, customers and suppliers, potential subsequent waves of COVID-19 infection or potential new variants, the effectiveness and adoption of COVID-19 vaccines and therapeutics and the broader implications on the macro-economic environment.
Removed
We intend to continue to actively monitor the evolution of the pandemic and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.
Removed
COVID-19 related factors and economic and marketplace dynamics that have impacted us, or may negatively impact, sales, gross margin and other results of operations due to a future resurgence of the pandemic include, but are not limited to: limitations on the ability of our suppliers to obtain necessary raw materials and parts to manufacture, or procure from manufacturers, the products we sell, or to meet delivery requirements and commitments; transportation delays and other logistical challenges resulting in longer lead times and constrained availability of HVAC/R products; limitations on the ability of our employees to perform their work due to illness or other disruptions caused by the pandemic, including local, state, or federal orders requiring employees to remain at home; labor shortages or an increase in the cost of labor; limitations on the ability of carriers to deliver our products to customers; limitations on the ability of our customers to obtain financing for significant purchases and operations, conduct their businesses, and purchase our products; and limitations on the ability of our customers to pay us on a timely basis.
Removed
As we cannot predict the duration or ultimate scope of any future resurgence of the COVID-19 pandemic, the potential negative financial impact to our results of operations cannot be reasonably estimated but could be material and last for an extended period of time.
Removed
Trading Liquidity The trading market for our common stock is limited, and there can be no assurance that a more liquid trading market for our common stock will develop.
Removed
There can be no assurance as to the liquidity of any market for our common stock, the ability of the holders of our common stock to sell any of their securities and the price at which the holders of our common stock will be able to sell such securities.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed0 unchanged
Biggest changeThe majority of these leases are for terms of three to five years. We believe that our facilities are sufficient to meet our present operating needs. 18 Table of Contents Trucks At December 31, 2022, we operated 832 ground transport vehicles, including delivery and pick-up trucks, vans, and tractors.
Biggest changeThe majority of these leases are for terms of three to five years. We believe that our facilities are sufficient to meet our present operating needs. Trucks At December 31, 2023, we operated 821 ground transport vehicles, including delivery and pick-up trucks, vans, and tractors. Of this number, 596 trucks were leased and the others were owned.
ITEM 2. PROPERTIES Our main properties include warehousing and distribution facilities, trucks, and administrative office space. Warehousing and Distribution Facilities At December 31, 2022, we operated 673 warehousing and distribution facilities across 42 U.S. states, Canada, Mexico, and Puerto Rico, having an aggregate of approximately 15.9 million square feet of space, of which approximately 15.7 million square feet is leased.
ITEM 2. PROPERTIES Our main properties include warehousing and distribution facilities, trucks, and administrative office space. Warehousing and Distribution Facilities At December 31, 2023, we operated 690 warehousing and distribution facilities across 42 U.S. states, Canada, Mexico, and Puerto Rico, having an aggregate of approximately 16.4 million square feet of space, of which approximately 16.2 million square feet is leased.
Of this number, 554 trucks were leased and the others were owned. We believe that the present size of our truck fleet is adequate to support our operations. Administrative Facilities Senior management and support staff are located at various administrative offices in approximately 0.3 million square feet of space.
We believe that the present size of our truck fleet is adequate to support our operations. Administrative Facilities Senior management and support staff are located at various administrative offices in approximately 0.3 million square feet of space. 18 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+0 added−2 removed1 unchanged
Biggest changeClass B 100.00 82.60 115.56 154.05 208.80 177.20 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 S&P MidCap 400 Index 100.00 88.92 112.21 127.54 159.12 138.34 S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.89 S&P 400 Industrials 100.00 85.11 113.67 132.41 170.07 150.52 20 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2022 to October 31, 2022(1) 311,408 $ 271.73 — $ — November 1, 2022 to November 30, 2022 — — — — December 1, 2022 to December 31, 2022 — — — — Total 311,408 $ 271.73 — $ — (1) On October 15, 2022, 975,622 shares of Class B restricted stock previously granted to our CEO during the period from 1997 to 2011 under various performance-based incentive plans vested.
Biggest changeClass B 100.00 139.90 186.51 252.78 214.53 369.56 Russell 2000 Index 100.00 125.52 150.58 172.90 137.56 160.85 S&P MidCap 400 Index 100.00 126.20 143.44 178.95 155.58 181.15 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 S&P 400 Industrials 100.00 133.55 155.57 199.82 176.84 232.43 20 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2023 to October 31, 2023 — $ — — $ — November 1, 2023 to November 30, 2023(1) 505 375.00 — — December 1, 2023 to December 31, 2023 — — — — Total 505 $ 375.00 — $ — (1) During the quarter ended December 31, 2023, we repurchased an aggregate of 505 shares of our Class B common stock to satisfy the tax withholding obligations in connection with the vesting of restricted stock.
In September 1999, our Board of Directors authorized the repurchase, at management’s discretion, of up to 7,500,000 shares of common stock in the open market or via private transactions. No shares were repurchased under this plan during 2022, 2021 or 2020.
In September 1999, our Board of Directors authorized the repurchase, at management’s discretion, of up to 7,500,000 shares of common stock in the open market or via private transactions. No shares were repurchased under this plan during 2023, 2022 or 2021.
In aggregate, 6,370,913 shares of Common and Class B common stock have been repurchased at a cost of $114.4 million since the inception of this plan. At December 31, 2022, there were 1,129,087 shares remaining authorized for repurchase under this plan. Shares were last repurchased by the Company under this plan in 2008. ITEM 6. [RESERVED]
In aggregate, 6,370,913 shares of Common and Class B common stock have been repurchased at a cost of $114.4 million since the inception of this plan. At December 31, 2023, there were 1,129,087 shares remaining authorized for repurchase under this plan. Shares were last repurchased by the Company under this plan in 2008.
Holders At February 21, 2023, there were 260 registered holders of our Common stock and 152 registered holders of our Class B common stock. 19 Table of Contents Shareholder Return Performance The following graph compares the cumulative five-year total shareholder return attained by holders of our Common stock and Class B common stock relative to the cumulative total returns of the Russell 2000 index, the S&P MidCap 400 index, the S&P 500 index, and the S&P 400 Industrials index.
Holders At February 20, 2024, there were 300 registered holders of our Common stock and 145 registered holders of our Class B common stock. 19 Table of Contents Shareholder Return Performance The following graph compares the cumulative five-year total shareholder return attained by holders of our Common stock and Class B common stock relative to the cumulative total returns of the Russell 2000 index, the S&P MidCap 400 index, the S&P 500 index, and the S&P 400 Industrials index.
Given our position as the largest distributor of HVAC/R equipment, parts and supplies in North America, our unique, sole line of business, the nature of our customers (air conditioning and heating contractors), and the products and markets we serve, we cannot reasonably identify an appropriate peer group; therefore, we have included in the graph below the performance of certain major market indices, which contain companies with market capitalizations similar to our own.
Given our position as the largest distributor of HVAC/R equipment, parts and supplies in North America, our unique, sole line of business, the nature of our customers (air conditioning and heating contractors), and the products and markets we serve, we cannot reasonably identify an appropriate peer group; therefore, we have included in the graph below the performance of certain major market indices, which contain companies with market capitalizations similar to our own, including the S&P 400 Industrials Index because the component companies of such index more closely relate to the industry in which we operate.
The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this annual report into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts. 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Watsco, Inc. 100.00 84.48 114.00 148.79 211.38 173.93 Watsco, Inc.
The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this annual report into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts. 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Watsco, Inc. 100.00 134.95 176.13 250.22 205.89 364.40 Watsco, Inc.
We have determined to add the S&P 400 Industrials Index in the graph below because it more closely relates to the industry in which we operate. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2017 to December 31, 2022.
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2018 to December 31, 2023.
Removed
The vested shares had a value of $265.1 million based on the closing price of our Class B common stock as of that date. This vested value constitutes taxable compensation to our CEO for income tax purposes and was subject to statutory withholding.
Removed
Upon vesting, we funded $104.3 million in statutory withholding, which, in turn, was satisfied by the CEO through a cash payment to us of $19.7 million and by the surrendering of 311,408 shares of Class B common stock, which we retired.

Other WSO 10-K year-over-year comparisons