ITEM 1. CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
851,424
|
|
|
$
|
808,972
|
|
Cost of sales
|
|
|
638,977
|
|
|
|
604,747
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
212,447
|
|
|
|
204,225
|
|
Selling, general and administrative expenses
|
|
|
161,779
|
|
|
|
157,217
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
50,668
|
|
|
|
47,008
|
|
Interest expense, net
|
|
|
986
|
|
|
|
1,377
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
49,682
|
|
|
|
45,631
|
|
Income taxes
|
|
|
15,508
|
|
|
|
14,331
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
34,174
|
|
|
|
31,300
|
|
Less: net income attributable to non-controlling interest
|
|
|
8,637
|
|
|
|
8,252
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Watsco, Inc.
|
|
$
|
25,537
|
|
|
$
|
23,048
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for Common and Class B common stock:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.71
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated unaudited financial statements.
3 of 20
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
34,174
|
|
|
$
|
31,300
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
13,693
|
|
|
|
(19,875
|
)
|
Unrealized (loss) gain on cash flow hedging instruments arising during the period
|
|
|
(793
|
)
|
|
|
1,626
|
|
Reclassification of gain on cash flow hedging instruments into earnings
|
|
|
(778
|
)
|
|
|
(137
|
)
|
Unrealized gain on available-for-sale securities arising during the period
|
|
|
9
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
12,131
|
|
|
|
(18,379
|
)
|
Comprehensive income
|
|
|
46,305
|
|
|
|
12,921
|
|
Less: comprehensive income attributable to non-controlling interest
|
|
|
13,340
|
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Watsco, Inc.
|
|
$
|
32,965
|
|
|
$
|
12,105
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated unaudited financial statements.
4 of 20
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32,856
|
|
|
$
|
35,229
|
|
Accounts receivable, net
|
|
|
464,154
|
|
|
|
451,079
|
|
Inventories
|
|
|
746,122
|
|
|
|
673,967
|
|
Other current assets
|
|
|
18,793
|
|
|
|
20,990
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,261,925
|
|
|
|
1,181,265
|
|
Property and equipment, net
|
|
|
61,866
|
|
|
|
62,715
|
|
Goodwill
|
|
|
381,238
|
|
|
|
378,310
|
|
Intangible assets, net
|
|
|
166,240
|
|
|
|
160,481
|
|
Other assets
|
|
|
5,621
|
|
|
|
5,671
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,876,890
|
|
|
$
|
1,788,442
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of other long-term obligations
|
|
$
|
187
|
|
|
$
|
184
|
|
Accounts payable
|
|
|
222,508
|
|
|
|
145,162
|
|
Accrued expenses and other current liabilities
|
|
|
124,556
|
|
|
|
124,955
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
347,251
|
|
|
|
270,301
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations:
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
|
|
237,900
|
|
|
|
245,300
|
|
Other long-term obligations, net of current portion
|
|
|
466
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
Total long-term obligations
|
|
|
238,366
|
|
|
|
245,814
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes and other liabilities
|
|
|
70,569
|
|
|
|
68,606
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Watsco, Inc. shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.50 par value
|
|
|
18,330
|
|
|
|
18,308
|
|
Class B common stock, $0.50 par value
|
|
|
2,574
|
|
|
|
2,533
|
|
Preferred stock, $0.50 par value
|
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
610,285
|
|
|
|
602,522
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
(39,476
|
)
|
|
|
(46,904
|
)
|
Retained earnings
|
|
|
490,780
|
|
|
|
495,276
|
|
Treasury stock, at cost
|
|
|
(114,425
|
)
|
|
|
(114,425
|
)
|
|
|
|
|
|
|
|
|
|
Total Watsco, Inc. shareholders equity
|
|
|
968,068
|
|
|
|
957,310
|
|
Non-controlling interest
|
|
|
252,636
|
|
|
|
246,411
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,220,704
|
|
|
|
1,203,721
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,876,890
|
|
|
$
|
1,788,442
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated unaudited financial statements.
5 of 20
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,174
|
|
|
$
|
31,300
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,957
|
|
|
|
4,621
|
|
Share-based compensation
|
|
|
2,785
|
|
|
|
2,831
|
|
Non-cash contribution to 401(k) plan
|
|
|
2,348
|
|
|
|
1,963
|
|
Provision for doubtful accounts
|
|
|
1,056
|
|
|
|
1,288
|
|
Excess tax benefits from share-based compensation
|
|
|
(854
|
)
|
|
|
(358
|
)
|
Other, net
|
|
|
601
|
|
|
|
758
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(11,934
|
)
|
|
|
(6,884
|
)
|
Inventories
|
|
|
(69,118
|
)
|
|
|
(126,900
|
)
|
Accounts payable and other liabilities
|
|
|
75,936
|
|
|
|
72,050
|
|
Other, net
|
|
|
1,901
|
|
|
|
2,548
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
41,852
|
|
|
|
(16,783
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,743
|
)
|
|
|
(3,114
|
)
|
Proceeds from sale of property and equipment
|
|
|
69
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,674
|
)
|
|
|
(3,043
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Dividends on Common and Class B common stock
|
|
|
(30,033
|
)
|
|
|
(24,524
|
)
|
Net (repayments) proceeds under revolving credit agreement
|
|
|
(7,400
|
)
|
|
|
38,497
|
|
Distributions to non-controlling interest
|
|
|
(7,115
|
)
|
|
|
(3,654
|
)
|
Net repayments of other long-term obligations
|
|
|
(45
|
)
|
|
|
(41
|
)
|
Excess tax benefits from share-based compensation
|
|
|
854
|
|
|
|
358
|
|
Net proceeds from issuances of common stock
|
|
|
2,101
|
|
|
|
1,381
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(41,638
|
)
|
|
|
12,017
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
|
|
87
|
|
|
|
(387
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,373
|
)
|
|
|
(8,196
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
35,229
|
|
|
|
24,447
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
32,856
|
|
|
$
|
16,251
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated unaudited financial statements.
6 of 20
WATSCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
March 31, 2016
(In thousands,
except share and per share data)
Basis of Consolidation
Watsco, Inc.
(collectively with its subsidiaries, Watsco, we, us or our) was incorporated in Florida in 1956 and is the largest distributor of air conditioning, heating and refrigeration equipment and related parts
and supplies (HVAC/R) in the HVAC/R distribution industry in North America. The accompanying March 31, 2016 interim condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or
omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments,
necessary for a fair presentation have been included in the condensed consolidated unaudited financial statements included herein. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto
included in our 2015 Annual Report on Form 10-K.
The condensed consolidated unaudited financial statements contained in this report include the accounts
of Watsco, all of its wholly owned subsidiaries and the accounts of three joint ventures with Carrier Corporation (Carrier), in each of which Watsco maintains a controlling interest. All significant intercompany balances and transactions
have been eliminated in consolidation.
The results of operations for the quarter ended March 31, 2016 are not necessarily indicative of the results
to be expected for the year ending December 31, 2016. Sales of residential central air conditioners, heating equipment and parts and supplies are seasonal. Furthermore, results of operations can be impacted favorably or unfavorably based on
weather patterns, primarily during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is
usually highest in the fourth quarter. Demand related to the new construction market is fairly consistent during the year, subject to weather and economic conditions, including their effect on the number of housing completions.
Use of Estimates
The preparation of condensed
consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the condensed consolidated unaudited financial statements and the reported amounts of revenues and expenses for the reporting period. Significant estimates include valuation reserves for accounts receivable, inventories and income taxes, reserves
related to self-insurance programs and the valuation of goodwill and indefinite lived intangible assets. While we believe that these estimates are reasonable, actual results could differ from such estimates.
New Accounting Standards
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (the FASB) issued a standard on revenue recognition that provides a single, comprehensive
revenue recognition model for all contracts with customers. The standard is principle-based and provides a five-step model to determine the measurement of revenue and timing of when it is recognized. The core principle is that a company will
recognize revenue to reflect the transfer of goods or services to customers at an amount that the company expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date of this standard by one
year. As a result, this standard is effective for our interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. We will adopt this guidance
on January 1, 2018, and are currently evaluating the impact on our consolidated financial statements.
Presentation of Debt Issuance Costs
In April 2015, the FASB issued guidance that will require debt issuance costs related to a recognized debt liability be presented on the balance sheet as a
direct deduction from the carrying amount of that debt liability, rather than as an asset. This guidance is effective retrospectively for interim and annual reporting periods beginning after December 15, 2015. The adoption of this guidance did not
have an impact on our consolidated financial statements.
7 of 20
Leases
In
February 2016, the FASB issued guidance on accounting for leases, which requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding
the amount, timing and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The guidance requires the use of a modified retrospective
approach. We are evaluating the impact of this guidance on our consolidated financial statements.
Share-Based Payments
In March 2016, the FASB issued amended guidance related to employee share-based payment accounting. The guidance requires all income tax effects of awards to
be recognized in the income statement when the awards vest or are settled and will be applied on a prospective basis. The guidance also requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than
as a financing activity, and can be applied retrospectively or prospectively. The guidance increases the amount companies can withhold to cover income taxes on awards without triggering liability classification for shares used to satisfy statutory
income tax withholding obligations and requires application of a modified retrospective transition method. The amended guidance will be effective for interim and annual periods beginning after December 15, 2016; early adoption is permitted if all
provisions are adopted in the same period. We are evaluating the impact of the amended guidance on our consolidated financial statements.
The following table presents the calculation of basic and diluted earnings per share for our Common and Class B common stock:
|
|
|
|
|
|
|
|
|
Quarters Ended March 31,
|
|
2016
|
|
|
2015
|
|
Basic Earnings per Share:
|
|
|
|
|
|
|
|
|
Net income attributable to Watsco, Inc. shareholders
|
|
$
|
25,537
|
|
|
$
|
23,048
|
|
Less: distributed and undistributed earnings allocated to non-vested restricted common
stock
|
|
|
2,413
|
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
|
Earnings allocated to Watsco, Inc. shareholders
|
|
$
|
23,124
|
|
|
$
|
21,180
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding Basic
|
|
|
32,511,806
|
|
|
|
32,377,159
|
|
Basic earnings per share for Common and Class B common stock
|
|
$
|
0.71
|
|
|
$
|
0.65
|
|
Allocation of earnings for Basic:
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
21,205
|
|
|
$
|
19,409
|
|
Class B common stock
|
|
|
1,919
|
|
|
|
1,771
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,124
|
|
|
$
|
21,180
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share:
|
|
|
|
|
|
|
|
|
Net income attributable to Watsco, Inc. shareholders
|
|
$
|
25,537
|
|
|
$
|
23,048
|
|
Less: distributed and undistributed earnings allocated to non-vested restricted common
stock
|
|
|
2,413
|
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
|
Earnings allocated to Watsco, Inc. shareholders
|
|
$
|
23,124
|
|
|
$
|
21,180
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding Basic
|
|
|
32,511,806
|
|
|
|
32,377,159
|
|
Effect of dilutive stock options
|
|
|
25,419
|
|
|
|
53,918
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding Diluted
|
|
|
32,537,225
|
|
|
|
32,431,077
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share for Common and Class B common stock
|
|
$
|
0.71
|
|
|
$
|
0.65
|
|
Diluted earnings per share for our Common stock assumes the conversion of all of our Class B common stock into Common stock as
of the beginning of the fiscal year; therefore, no allocation of earnings to Class B common stock is required. At March 31, 2016 and 2015, our outstanding Class B common stock was convertible into 2,698,100 and 2,707,625 shares of our Common
stock, respectively.
Diluted earnings per share excluded 126,000 and 13,767 shares for the quarters ended March 31, 2016 and 2015, respectively, related
to stock options with an exercise price per share greater than the average market value, resulting in an anti-dilutive effect on diluted earnings per share.
8 of 20
3.
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
Other comprehensive income (loss) consists of the foreign currency translation adjustment associated with our Canadian operations use
of the Canadian dollar as its functional currency and changes in the unrealized gains on cash flow hedging instruments and available-for-sale securities. The tax effects allocated to each component of other comprehensive income (loss) were as
follows:
|
|
|
|
|
|
|
|
|
Quarters Ended March 31,
|
|
2016
|
|
|
2015
|
|
Foreign currency translation adjustment
|
|
$
|
13,693
|
|
|
$
|
(19,875
|
)
|
|
|
|
Unrealized (loss) gain on cash flow hedging instruments
|
|
|
(1,086
|
)
|
|
|
2,227
|
|
Income tax benefit (expense)
|
|
|
293
|
|
|
|
(601
|
)
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on cash flow hedging instruments, net of tax
|
|
|
(793
|
)
|
|
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of gain on cash flow hedging instruments into earnings
|
|
|
(1,066
|
)
|
|
|
(188
|
)
|
Income tax expense
|
|
|
288
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
Reclassification of gain on cash flow hedging instruments into earnings, net of tax
|
|
|
(778
|
)
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities
|
|
|
13
|
|
|
|
11
|
|
Income tax expense
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities, net of tax
|
|
|
9
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
12,131
|
|
|
$
|
(18,379
|
)
|
|
|
|
|
|
|
|
|
|
The changes in each component of accumulated other comprehensive loss, net of tax, were as follows:
|
|
|
|
|
|
|
|
|
Quarters Ended March 31,
|
|
2016
|
|
|
2015
|
|
Foreign currency translation adjustment:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(47,204
|
)
|
|
$
|
(23,623
|
)
|
Current period other comprehensive income (loss)
|
|
|
8,362
|
|
|
|
(11,843
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
(38,842
|
)
|
|
|
(35,466
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
600
|
|
|
|
168
|
|
Current period other comprehensive (loss) income
|
|
|
(476
|
)
|
|
|
975
|
|
Less reclassification adjustment
|
|
|
(467
|
)
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
(343
|
)
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
(300
|
)
|
|
|
(292
|
)
|
Current period other comprehensive income
|
|
|
9
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
(291
|
)
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, net of tax
|
|
$
|
(39,476
|
)
|
|
$
|
(34,690
|
)
|
|
|
|
|
|
|
|
|
|
We enter into foreign currency forward contracts to offset the earnings impact that foreign exchange rate fluctuations would otherwise have
on certain monetary liabilities that are denominated in nonfunctional currencies.
Cash Flow Hedging Instruments
We enter into foreign currency forward contracts that are designated as cash flow hedges. The settlement of these derivatives results in reclassifications from
accumulated other comprehensive income (loss) to earnings for the period in which the settlement of these
9 of 20
instruments occur. The maximum period for which we hedge our cash flow using these instruments is 12 months. Accordingly, at March 31, 2016, all of our open foreign currency forward contracts had
maturities of one year or less. The total notional value of our foreign currency exchange contracts designated as cash flow hedges at March 31, 2016 was $25,900, and such contracts have varying terms expiring through September 2016.
The impact from foreign exchange derivative instruments designated as cash flow hedges was as follows:
|
|
|
|
|
|
|
|
|
Quarters Ended March 31,
|
|
2016
|
|
|
2015
|
|
(Loss) gain recorded in accumulated other comprehensive loss
|
|
$
|
(1,086
|
)
|
|
$
|
2,227
|
|
Gain reclassified from accumulated other comprehensive loss into earnings
|
|
$
|
1,066
|
|
|
$
|
188
|
|
At March 31, 2016, we expected an estimated $782 pre-tax loss to be reclassified into earnings to reflect the fixed prices
obtained from foreign exchange hedging within the next 12 months.
Derivatives Not Designated as Hedging Instruments
We have also entered into foreign currency forward contracts that are either not designated as hedges or did not qualify for hedge accounting. These derivative
instruments were effective economic hedges for all of the periods presented. The fair value gains and losses on these contracts are recognized in earnings as a component of selling, general and administrative expenses. The total notional value of
our foreign currency exchange contracts not designated as hedging instruments at March 31, 2016 was $15,200, and such contracts have varying terms expiring through May 2016.
We recognized (losses) gains of $(431) and $1,383 from foreign currency forward contracts not designated as hedging instruments in our condensed consolidated
unaudited statements of income for the quarters ended March 31, 2016 and 2015, respectively.
The following table summarizes the fair value of derivative
instruments, which consist solely of foreign currency forward contracts, included in other current assets and accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets. See Note 5.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Derivatives designated as hedging instruments
|
|
$
|
|
|
|
$
|
923
|
|
|
$
|
1,079
|
|
|
$
|
3
|
|
Derivatives not designated as hedging instruments
|
|
|
26
|
|
|
|
326
|
|
|
|
1,000
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative instruments
|
|
$
|
26
|
|
|
$
|
1,249
|
|
|
$
|
2,079
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 of 20
5.
|
FAIR VALUE MEASUREMENTS
|
The following tables present our assets and liabilities carried at fair value that are measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
at March 31, 2016 Using
|
|
|
Balance Sheet Location
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
Other assets
|
|
$
|
267
|
|
|
$
|
267
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
Other current assets
|
|
$
|
26
|
|
|
|
|
|
|
$
|
26
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
Accrued expenses and other current liabilities
|
|
$
|
2,079
|
|
|
|
|
|
|
$
|
2,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
at December 31, 2015 Using
|
|
|
Balance Sheet Location
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
Other assets
|
|
$
|
254
|
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
Other current assets
|
|
$
|
1,249
|
|
|
|
|
|
|
$
|
1,249
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
Accrued expenses and other current liabilities
|
|
$
|
7
|
|
|
|
|
|
|
$
|
7
|
|
|
|
|
|
The following is a description of the valuation techniques used for these assets and liabilities, as well as the level of
input used to measure fair value:
Available-for-sale securities
the investments are exchange-traded equity securities. Fair values for
these investments are based on closing stock prices from active markets and are therefore classified within Level 1 of the fair value hierarchy.
Derivative financial instruments
these derivatives are foreign currency forward contracts. See Note 4. Fair value is based on observable market
inputs, such as forward rates in active markets; therefore, we classify these derivatives within Level 2 of the valuation hierarchy.
There were no
transfers in or out of Level 1 and Level 2 during the quarter ended March 31, 2016.
Common Stock Dividends
We paid cash
dividends of $0.85 and $0.70 per share of Common stock and Class B common stock during the quarters ended March 31, 2016 and 2015, respectively.
Non-Vested Restricted Stock
During the quarters ended
March 31, 2016 and 2015, we granted 87,678 and 152,979 shares of non-vested restricted stock, respectively. During the quarter ended March 31, 2016, 7,282 shares of Common stock with an aggregate fair market value of $945 were withheld as
payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of restricted stock. These shares were retired upon delivery.
Exercise of Stock Options
During the quarters ended
March 31, 2016 and 2015, 27,000 and 25,200 stock options, respectively, were exercised for a combination of Common and Class B common stock. Cash received from Common stock issued as a result of stock options exercised during the quarters ended
March 31, 2016 and 2015 was $1,804 and $1,103, respectively. During the quarter ended March 31, 2015, 4,627 shares of Class B common stock with an aggregate fair market value of $549 were withheld as payment in lieu of cash for stock option
exercises and related tax withholdings. These shares were retired upon delivery.
Employee Stock Purchase Plan
During the quarters ended March 31, 2016 and 2015, 2,628 and 2,669 shares of Common stock were issued under our employee stock purchase plan for which we
received net proceeds of $297 and $278, respectively.
11 of 20
401(k) Plan
During the quarters ended March 31, 2016 and 2015, we issued 20,045 and 18,343 shares of Common stock, respectively, to our profit sharing retirement
plan, representing the Common stock discretionary matching contribution of $2,348 and $1,963, respectively.
Non-controlling Interest
Of our three joint ventures with Carrier, we have an 80% controlling interest in one and a 60% controlling interest in each of the other two, while Carrier has
either a 20% or 40% non-controlling interest in such joint ventures, as applicable. The following table reconciles shareholders equity attributable to Carriers non-controlling interest:
|
|
|
|
|
Non-controlling interest at December 31, 2015
|
|
$
|
246,411
|
|
Net income attributable to non-controlling interest
|
|
|
8,637
|
|
Foreign currency translation adjustment
|
|
|
5,331
|
|
Distributions to non-controlling interest
|
|
|
(7,115
|
)
|
Loss recorded in accumulated other comprehensive loss
|
|
|
(317
|
)
|
Gain reclassified from accumulated other comprehensive loss into earnings
|
|
|
(311
|
)
|
|
|
|
|
|
Non-controlling interest at March 31, 2016
|
|
$
|
252,636
|
|
|
|
|
|
|
7.
|
COMMITMENTS AND CONTINGENCIES
|
Litigation, Claims and Assessments
In
December 2015, a purported Watsco shareholder, Nelson Gaskins, filed a derivative lawsuit in the U.S. District Court for the Southern District of Florida against Watscos Board of Directors. The Company is a nominal defendant. The lawsuit
alleges breach of fiduciary duties regarding CEO incentive compensation and seeks to recover alleged excessive incentive compensation and unspecified damages. The defendants believe the claims are entirely without merit and intend to vigorously
defend against them. We believe the ultimate outcome of this matter will not have a material adverse effect on our financial condition or results of operations.
We are involved in other litigation incidental to the operation of our business. We vigorously defend all matters in which we or our subsidiaries are named
defendants and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect us. Although the adequacy of existing insurance coverage and the outcome of any legal
proceedings cannot be predicted with certainty, based on the current information available, we do not believe the ultimate liability associated with any known claims or litigation will have a material adverse effect on our financial condition or
results of operations.
Self-Insurance
Self-insurance reserves are maintained relative to company-wide casualty insurance and health benefit programs. The level of exposure from catastrophic events
is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When estimating the self-insurance liabilities and related reserves, management considers a number of factors, which include historical claims experience,
demographic factors, severity factors and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party actuaries to evaluate whether the self-insurance reserves are adequate. If actual
claims or adverse development of loss reserves occur and exceed these estimates, additional reserves may be required. Reserves in the amounts of $3,082 and $3,214 at March 31, 2016 and December 31, 2015, respectively, were established related
to such programs and are included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets.
Purchase
Obligations
At March 31, 2016, we were obligated under a non-cancelable purchase order with one of our key suppliers for goods aggregating
approximately $176,000.
8.
|
RELATED PARTY TRANSACTIONS
|
Purchases from Carrier and its affiliates comprised 61% and 58% of all inventory purchases made during the quarters ended
March 31, 2016 and 2015, respectively. At March 31, 2016 and December 31, 2015, approximately $90,000 and $85,000, respectively, was payable to Carrier and its affiliates, net of receivables. Our joint ventures with Carrier also sell
HVAC products to Carrier and its affiliates. Revenues in our condensed consolidated unaudited statements of income for the quarters ended March 31, 2016 and 2015 included approximately $12,000 and $8,000, respectively, of sales to Carrier and
its affiliates. We believe these transactions are conducted at arms-length in the ordinary course of business.
12 of 20
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains or incorporates by reference statements that are not historical in nature and that are intended to be, and are
hereby identified as, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Statements which are not historical in nature, including the words anticipate, estimate,
could, should, may, plan, seek, expect, believe, intend, target, will, project, focused,
outlook and variations of these words and negatives thereof and similar expressions are intended to identify forward-looking statements, including statements regarding, among others, (i) economic conditions, (ii) business and acquisition
strategies, (iii) potential acquisitions and/or joint ventures, (iv) financing plans and (v) industry, demographic and other trends affecting our financial condition or results of operations. These forward-looking statements are based on
managements current expectations, are not guarantees of future performance and are subject to a number of risks, uncertainties and changes in circumstances, certain of which are beyond our control. Actual results could differ materially from
these forward-looking statements as a result of several factors, including, but not limited to:
|
|
|
general economic conditions;
|
|
|
|
competitive factors within the HVAC/R industry;
|
|
|
|
effects of supplier concentration;
|
|
|
|
fluctuations in certain commodity costs;
|
|
|
|
new housing starts and completions;
|
|
|
|
capital spending in the commercial construction market;
|
|
|
|
access to liquidity needed for operations;
|
|
|
|
seasonal nature of product sales;
|
|
|
|
insurance coverage risks;
|
|
|
|
federal, state and local regulations impacting our industry and products;
|
|
|
|
prevailing interest rates;
|
|
|
|
foreign currency exchange rate fluctuations;
|
|
|
|
international political risk;
|
|
|
|
cybersecurity risk; and
|
|
|
|
the continued viability of our business strategy.
|
We believe these forward-looking statements are reasonable;
however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. For additional information regarding other important factors that may affect our operations and could cause actual results to
vary materially from those anticipated in the forward-looking statements, please see the discussion included in Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2015, as well as the other documents
and reports that we file with the SEC. Forward-looking statements speak only as of the date the statements were made. We assume no obligation to update forward-looking information or the discussion of such risks and uncertainties to reflect actual
results, changes in assumptions or changes in other factors affecting forward-looking information, except as required by applicable law. We qualify any and all of our forward-looking statements by these cautionary factors.
The following information should be read in conjunction with the condensed consolidated unaudited financial statements, including the notes thereto, included
under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related Managements Discussion and Analysis of Financial Condition
and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2015.
Company Overview
Watsco, Inc. was incorporated in Florida in 1956, and, together with its subsidiaries (collectively, Watsco, or we, us or
our) 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. At March 31, 2016, we operated from 565
locations in 37 U.S. States, Canada, Mexico and Puerto Rico with additional market coverage on an export basis to portions of Latin America and the Caribbean.
13 of 20
Revenues primarily consist of sales of air conditioning, heating and refrigeration equipment and related parts
and supplies. Selling, general and administrative expenses primarily consist of selling expenses, the largest components of which are salaries, commissions and marketing expenses that are variable and correlate to changes in sales. Other significant
selling, general and administrative expenses relate to the operation of warehouse facilities, including a fleet of trucks and forklifts, and facility rent, which expenses are payable mostly under non-cancelable operating leases.
Sales of residential central air conditioners, heating equipment and parts and supplies are seasonal. Furthermore, results of operations can be impacted
favorably or unfavorably based on weather patterns, primarily during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and
demand for heating equipment is usually highest in the fourth quarter. Demand related to the new construction market is fairly consistent during the year, subject to weather and economic conditions, including their effect on the number of housing
completions.
Joint Ventures with Carrier Corporation
In 2009, we formed a joint venture with Carrier Corporation (Carrier), which we refer to as Carrier Enterprise I, in which Carrier contributed 95
of its company-owned locations in 13 Sun Belt states and Puerto Rico and its export division in Miami, Florida, and we contributed 15 locations that distributed Carrier products. In July 2012, we exercised our option to acquire an additional 10%
ownership interest in Carrier Enterprise I, which increased our ownership interest to 70%; and, on July 1, 2014, we exercised our last remaining option to acquire an additional 10% ownership interest in Carrier Enterprise I, which increased our
controlling interest in Carrier Enterprise I to 80%. Neither we nor Carrier has any remaining options to purchase additional ownership interests in Carrier Enterprise I or any of our other joint ventures with Carrier, which are described below.
In 2011, we formed a second joint venture with Carrier and completed two additional transactions. In April 2011, Carrier contributed 28 of its company-owned
locations in eight Northeast U.S. States, and we contributed 14 locations in the Northeast U.S. In July 2011, we purchased Carriers distribution operations in Mexico, which included seven locations. Collectively, the Northeast locations and
the Mexico operations are referred to as Carrier Enterprise II. We have a 60% controlling interest in Carrier Enterprise II, and Carrier has a 40% non-controlling interest.
In 2012, we formed a third joint venture, which we refer to as Carrier Enterprise III, with UTC Canada Corporation, referred to as UTC Canada, an affiliate of
Carrier. Carrier contributed 35 of its company-owned locations in Canada to Carrier Enterprise III. We have a 60% controlling interest in Carrier Enterprise III, and UTC Canada has a 40% non-controlling interest.
Critical Accounting Policies
Managements
discussion and analysis of financial condition and results of operations is based upon the condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities
at the date of the condensed consolidated unaudited financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. At least
quarterly, management reevaluates its judgments and estimates, which are based on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances.
Our critical accounting policies are included in our 2015 Annual Report on Form 10-K, as filed on February 29, 2016. We believe that there have been no
significant changes during the quarter ended March 31, 2016 to the critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.
Recent Accounting Pronouncements
Refer to Note 1 to
our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q for a discussion of new accounting standards.
Results of Operations
The following table summarizes
information derived from our condensed consolidated unaudited statements of income, expressed as a percentage of revenues, for the quarters ended March 31, 2016 and 2015:
14 of 20
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
75.0
|
|
|
|
74.8
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
25.0
|
|
|
|
25.2
|
|
Selling, general and administrative expenses
|
|
|
19.0
|
|
|
|
19.4
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6.0
|
|
|
|
5.8
|
|
Interest expense, net
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
5.8
|
|
|
|
5.6
|
|
Income taxes
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.0
|
|
|
|
3.8
|
|
Less: net income attributable to non-controlling interest
|
|
|
1.0
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Watsco, Inc.
|
|
|
3.0
|
%
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
Note: Due to rounding, percentages may not add up to 100.
In the following narratives, computations and disclosure information referring to same-store basis exclude the effects of locations acquired or
locations opened or closed during the immediately preceding 12 months unless they are within close geographical proximity to existing locations. At March 31, 2016 and 2015, 24 and 31 locations, respectively, were excluded from same-store
basis information. The table below summarizes the changes in our locations for the 12 months ended March 31, 2016:
|
|
|
|
|
|
|
Number of
Locations
|
|
March 31, 2015
|
|
|
569
|
|
Opened
|
|
|
9
|
|
Closed
|
|
|
(12
|
)
|
|
|
|
|
|
December 31, 2015
|
|
|
566
|
|
Opened
|
|
|
1
|
|
Closed
|
|
|
(2
|
)
|
|
|
|
|
|
March 31, 2016
|
|
|
565
|
|
|
|
|
|
|
Revenues
Revenues for
the first quarter of 2016 increased $42.5 million, or 5%, including $0.5 million from locations opened during the preceding 12 months, offset by $5.7 million from locations closed. On a same-store basis, revenues increased $47.7 million, or 6%, as
compared to the same period in 2015, reflecting a 7% increase in sales of HVAC equipment (65% of sales), which included a 9% increase in residential HVAC equipment and a 2% increase in commercial HVAC equipment, a 4% increase in sales of other HVAC
products (30% of sales) and a 6% increase in sales of commercial refrigeration products (5% of sales). The increase in same-store revenues was primarily due to strong demand for residential HVAC equipment. Revenues from sales of residential HVAC
equipment also benefited from an improved sales mix of higher-efficiency air conditioning and heating systems, which sell at higher unit prices.
Gross
Profit
Gross profit for the first quarter of 2016 increased $8.2 million, or 4%, primarily as a result of increased revenues. Gross profit margin for
the quarter ended March 31, 2016 declined 20 basis-points to 25.0% versus 25.2%, primarily due to a shift in sales mix away from non-equipment products and toward HVAC equipment, which generates a lower gross profit margin than non-equipment
products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter of 2016 increased $4.6 million, or 3%, primarily due to increased revenues. Selling, general
and administrative expenses as a percent of revenues for the quarter ended March 31, 2016 decreased to 19.0% versus 19.4% for the same period in 2015. The decrease in selling, general, and administrative expenses as a percentage of revenues was
primarily due to improved leveraging of fixed operating costs as compared to 2015. Selling, general and administrative expenses included $1.5 million of additional costs for 2016 in excess of 2015 for ongoing technology initiatives. On a same-store
basis, selling, general and administrative expenses increased 4% as compared to the same period in 2015.
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Interest Expense, Net
Net interest expense for the first quarter of 2016 decreased $0.4 million, or 28%, primarily as a result of a decrease in average outstanding borrowings,
partially offset by a higher effective interest rate for the 2016 period as compared to the same period in 2015.
Income Taxes
Income taxes increased to $15.5 million for the first quarter of 2016, as compared to $14.3 million for the first quarter of 2015 and are a composite of the
income taxes attributable to our wholly owned operations and income taxes attributable to the Carrier joint ventures, which are primarily taxed as partnerships for income tax purposes. The effective income tax rates attributable to us were 37.0% and
37.5% for the quarters ended March 31, 2016 and 2015, respectively. The decrease was primarily due to higher tax credits in 2016 versus 2015 related to income generated by our U.S. subsidiaries.
Net Income Attributable to Watsco, Inc.
Net income
attributable to Watsco for the quarter ended March 31, 2016 increased $2.5 million, or 11%, compared to the same period in 2015. The increase was primarily driven by higher revenues, higher gross profit and reduced selling, general and
administrative expenses as a percent of revenues, as discussed above.
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate cash to execute our business strategy and fund operating and investing activities, taking into
consideration the seasonal demand for HVAC/R products, which peaks in the months of May through August. Significant factors that could affect our liquidity include the following:
|
|
|
cash needed to fund our business (primarily working capital requirements);
|
|
|
|
borrowing capacity under our bank line of credit;
|
|
|
|
the ability to attract long-term capital with satisfactory terms;
|
|
|
|
acquisitions, including joint ventures;
|
|
|
|
capital expenditures; and
|
|
|
|
the timing and extent of common stock repurchases.
|
Sources and Uses of Cash
We rely on cash flows from operations and borrowing capacity under our revolving credit agreement to fund seasonal working capital needs and for other general
corporate purposes, including dividend payments, if and as declared by our Board of Directors, capital expenditures, business acquisitions and development of our long-term operating and technology strategies.
As of March 31, 2016, we had $32.9 million of cash and cash equivalents, of which $19.7 million was held by foreign subsidiaries. The repatriation of cash
balances from our foreign subsidiaries could have adverse tax consequences or be subject to capital controls; however, these balances are generally available without legal restrictions to fund ordinary business operations of our foreign
subsidiaries.
We believe that our operating cash flows, cash on hand and funds available for borrowing under our line of credit will be sufficient to
meet our liquidity needs in the foreseeable future. However, there can be no assurance that our current sources of available funds will be sufficient to meet our cash requirements.
Our access to funds under our line of credit depends 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 line of credit and may also adversely affect the determination of interest rates, particularly rates based on LIBOR, which is one of the base rates under our line of
credit. Disruptions in the credit and capital markets could also result in increased borrowing costs and/or reduced borrowing capacity under our line of credit.
Working Capital
Working capital increased to $914.7
million at March 31, 2016 from $911.0 million at December 31, 2015.
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Cash Flows
The following table summarizes our cash flow activity for the quarters ended March 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
41.9
|
|
|
$
|
(16.8
|
)
|
|
$
|
58.7
|
|
Cash flows used in investing activities
|
|
$
|
(2.7
|
)
|
|
$
|
(3.0
|
)
|
|
$
|
0.3
|
|
Cash flows (used in) provided by financing activities
|
|
$
|
(41.6
|
)
|
|
$
|
12.0
|
|
|
$
|
(53.6
|
)
|
The individual items contributing to cash flow changes for the periods presented are detailed in the condensed consolidated
unaudited statements of cash flows contained in this Quarterly Report on Form 10-Q.
Operating Activities
Net cash provided by operating activities was higher primarily due to a lower seasonal build-up of inventory as well as lower inventory as a result of the
transition to new regional efficiency standards in 2015 and higher net income in 2016.
Investing Activities
Net cash used in investing activities was lower due to a decrease in capital expenditures in 2016.
Financing Activities
Net cash used in financing
activities was higher due to increases in repayments of borrowings under our revolving credit agreement, dividends paid and distributions to the noncontrolling interest in 2016.
Revolving Credit Agreement
We maintain an unsecured,
syndicated revolving credit agreement that provides for borrowings of up to $600.0 million. Borrowings are used to fund seasonal working capital needs and for other general corporate purposes, including acquisitions, dividends (if and as declared by
our Board of Directors), capital expenditures, stock repurchases and issuances of letters of credit. The credit agreement matures on July 1, 2019. At March 31, 2016 and December 31, 2015, $237.9 million and $245.3 million were outstanding under the
revolving credit agreement, respectively. The revolving credit agreement contains customary affirmative and negative covenants, including financial covenants with respect to consolidated leverage and interest coverage ratios, and other customary
restrictions. We believe we were in compliance with all covenants at March 31, 2016.
Purchase Obligations
At March 31, 2016, we were obligated under a non-cancelable purchase order with one of our key suppliers for goods aggregating approximately $176.0 million.
Acquisitions
We continually evaluate potential
acquisitions and/or joint ventures and routinely hold discussions with a number of acquisition candidates. Should suitable acquisition opportunities arise that would require additional financing, we believe our financial position and earnings
history provide a sufficient basis for us to either obtain additional debt financing at competitive rates and on reasonable terms or raise capital through the issuance of equity securities.
Common Stock Dividends
We paid cash dividends of $0.85
and $0.70 per share of Common stock and Class B common stock during the quarters ended March 31, 2016 and 2015, respectively. On April 1, 2016, our Board of Directors declared a regular quarterly cash dividend of $0.85 per share of Common and
Class B common stock that was paid on April 29, 2016 to shareholders of record as of April 15, 2016. Future dividends and/or changes in dividend rates will be 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.
Company Share Repurchase Program
In September 1999, our
Board of Directors authorized the repurchase, at managements discretion, of up to 7,500,000 shares of common stock in the open market or via private transactions. Shares repurchased under the program are accounted for using the cost method and
result in a reduction of shareholders equity. No shares were repurchased during the quarters ended March 31, 2016 or 2015. 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 the program. At March 31, 2016, there were 1,129,087 shares remaining authorized for repurchase under the program.
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