WATSCO INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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," "goal," "designed," 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 and investments in unconsolidated entities,
(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 management's 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, both in the United States and in the
         international markets we serve;



  • competitive factors within the HVAC/R industry;



  • effects of supplier concentration;



  • fluctuations in certain commodity costs;



  • consumer spending;



  • consumer debt levels;



  • the continued impact of the
    COVID-19
    pandemic;



  • new housing starts and completions;



  • capital spending in the commercial construction market;



  • access to liquidity needed for operations;



  • seasonal nature of product sales;



  • weather patterns and conditions;



  • insurance coverage risks;

• federal, state, and local regulations impacting our industry and products;

  • prevailing interest rates;



  • foreign currency exchange rate fluctuations;



  • international risk;



  • cybersecurity risk; and



  • the continued viability of our business strategy.


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 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 below under Impact of
COVID-19
Pandemic and Item 1A "Risk Factors" of our Annual Report on Form
10-K
for the year ended December 31, 2021, 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.

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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 Management's 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, 2021.

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 June 30, 2022, we operated from 673 locations in 42 U.S.
States, Canada, Mexico, and Puerto Rico with additional market coverage on an
export basis to portions of Latin America and the Caribbean.

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, a majority of
which we operate under
non-cancelable
operating leases.

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 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 first and fourth
quarters. Demand related to the new construction sectors throughout most of the
markets we serve tends to be fairly evenly distributed throughout the year and
depends largely on housing completions and related weather and economic
conditions.

Impact of the
COVID-19
Pandemic

The
COVID-19
pandemic has had widespread, rapidly-evolving and unpredictable impacts on
financial markets and business practices. As conditions have continued to
improve, governments and organizations have responded by adjusting their
restrictions and guidelines accordingly. Although we have learned to navigate
COVID-19
while maintaining our operations in all material respects, our focus remains on
promoting employee health and safety, serving our customers and ensuring
business continuity.

As economic activity has been recovering and the effects of the pandemic have
continued to lessen, the impact of the pandemic on our business has been more
reflective of greater economic and marketplace dynamics rather than
pandemic-related issues, such as location closures, mandated restrictions and
employee illness. Certain of our manufacturers and suppliers continue to
experience some level of supply chain disruptions caused by component
availability, labor shortages, transportation delays, and other logistical
challenges, resulting in longer lead times and constrained availability of
HVAC/R products. These supply chain disruptions impacted our ability to fulfill
contractor demand at various points during the first half of 2022. Despite these
disruptions, we experienced growth in sales of residential units during the
first half of 2022. We intend to continue to actively monitor the situation 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.

Climate Change and Reductions in CO
2
e Emissions

We believe that our business plays an important and significant role in the
drive to lower CO
2
e emissions. According to the United States Department of Energy, heating and
air conditioning accounts for roughly half of household energy consumption in
the United States. 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.

The overwhelming majority of new HVAC systems that we sell replace systems that
likely operate below current minimum efficiency standards in the United States
and may use more harmful refrigerants that have been, or are being,
phased-out. As
consumers replace HVAC systems with new, higher-efficiency systems, homeowners
will consume less energy, save costs and reduce their carbon footprint.

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. In addition, regulatory mandates will periodically increase
the required minimum Seasonal Energy Efficiency Ratio rating, referred to as
SEER, thus providing a catalyst for greater sales of higher-efficiency systems.
Recently enacted regulations will increase the current minimum SEER beginning in
2023 (in general terms, to 14 SEER from 13 SEER in the Northern U.S. and to 15
SEER from 14 SEER for the Southern U.S.).

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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.
Our sales of higher-efficiency residential HVAC systems (those above base-level
efficiency) grew 22% organically during the first half of 2022, outpacing the
overall growth rate of 20% for residential HVAC equipment in the United States.
Based on estimates validated by independent sources, we averted an estimated
12.9 million metric tons of CO
2
e emissions during the period January 1, 2020 to June 30, 2022 through the sale
of replacement residential HVAC systems at higher-efficiency standards.

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. We have an 80%
controlling interest in Carrier Enterprise I, and Carrier has a 20%
non-controlling
interest. The export division, Carrier InterAmerica Corporation, redomesticated
from the U.S. Virgin Islands to Delaware effective December 31, 2019, following
which Carrier InterAmerica Corporation became a separate operating entity in
which we have an 80% controlling interest and Carrier has a 20%
non-controlling
interest. On August 1, 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.

In 2011, we formed a second joint venture with Carrier, which we refer to as
Carrier Enterprise II, in which Carrier contributed company-owned locations in
the Northeast U.S., and we contributed certain locations operating as Homans
Associates LLC ("Homans"), a Watsco subsidiary, in the Northeast U.S.
Subsequently, Carrier Enterprise II purchased Carrier's distribution operations
in Mexico. We have an 80% controlling interest in Carrier Enterprise II, and
Carrier has a 20%
non-controlling
interest. Effective May 31, 2019, we repurchased the 20% ownership interest in
Homans from Carrier Enterprise II, following which we own 100% of Homans. Homans
previously operated as a division of Carrier Enterprise II and subsequent to the
purchase operates as a wholly owned subsidiary of the Company.

In 2012, we formed a third joint venture with Carrier, which we refer to as
Carrier Enterprise III. 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 Carrier has a 40%
non-controlling
interest.

On April 9, 2021, we acquired certain assets and assumed certain liabilities
comprising the HVAC distribution business of Temperature Equipment Corporation,
an HVAC distributor operating from 32 locations in Illinois, Indiana, Kansas,
Michigan, Minnesota, Missouri and Wisconsin. We formed a new, stand-alone joint
venture with Carrier, TEC Distribution LLC ("TEC"), that operates this business.
We have an 80% controlling interest in TEC, and Carrier has a 20%
non-controlling
interest.

Critical Accounting Estimates

Management's 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 condensed consolidated unaudited 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 estimates are included in our 2021 Annual Report on Form
10-K,
as filed with the SEC on February 25, 2022. We believe that there have been no
significant changes during the quarter ended June 30, 2022 to the critical
accounting estimates disclosed in our Annual Report on Form
10-K
for the year ended December 31, 2021.

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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 and six months ended June 30, 2022 and 2021:

                                                            Quarter                  Six Months
                                                         Ended June 30,            Ended June 30,
                                                       2022         2021         2022         2021
Revenues                                                100.0 %      100.0 %      100.0 %      100.0 %
Cost of sales                                            72.1         74.2         71.4         74.1

Gross profit                                             27.9         25.8         28.6         25.9
Selling, general and administrative expenses             14.8         14.4         16.4         16.2
Other income                                              0.3          0.3          0.3          0.3

Operating income                                         13.5         11.7         12.5         10.0
Interest expense, net                                     0.1          0.0          0.0          0.0

Income before income taxes                               13.4         11.7         12.5         10.0
Income taxes                                              2.8          2.4          2.6          2.0

Net income                                               10.6          9.3          9.9          8.0
Less: net income attributable to
non-controlling
interest                                                  1.5          1.5  

1.5 1.3

Net income attributable to Watsco, Inc.                   9.0 %        7.8 

% 8.4 % 6.7 %

Note: Due to rounding, percentages may not add up to 100.

The following narratives reflect our acquisitions of Makdad Industrial Supply
Co., Inc. ("MIS") in August 2021, Acme Refrigeration of Baton Rouge LLC ("ACME")
in May 2021, and Temperature Equipment Corporation in April 2021. We did not
acquire any businesses during the quarter or six months ended June 30, 2022.

In the following narratives, computations and other information referring to
"same-store basis" exclude the effects of locations closed, acquired, or
locations opened, in each case during the immediately preceding 12 months,
unless such locations are within close geographical proximity to existing
locations. At June 30, 2022 and 2021, nine and one locations, respectively, that
we opened during the immediately preceding 12 months were near existing
locations and were therefore included in "same-store basis" information.

The table below summarizes the changes in our locations for the 12 months ended
June 30, 2022:

                     Number of

                     Locations
June 30, 2021               655
Opened                       16
Acquired                      6
Closed                       (6 )

December 31, 2021           671
Opened                        7
Closed                       (5 )

June 30, 2022               673

Second Quarter of 2022 Compared to Second Quarter of 2021

Revenues

Revenues for the second quarter of 2022 increased $284.1 million, or 15%, as
compared to the second quarter of 2021, including $11.2 million attributable to
the new locations acquired and $14.3 million from other locations opened during
the preceding 12 months, offset by $5.2 million from locations closed. Sales of
HVAC equipment (70% of sales) increased 19%, sales of other HVAC products (26%
of sales) increased 23% and sales of commercial refrigeration products (4% of
sales) increased 26%. On a same-store basis, revenues increased $263.8 million,
or 14%, as compared to the same period in 2021, reflecting a 13% increase in
sales of HVAC equipment (70% of sales), which included a 14% increase in sales
of residential HVAC equipment (15% increase in U.S. markets) and a 5% increase
in sales of commercial HVAC equipment, a 15% increase in sales of other HVAC
products (26% of sales) and a 26% increase in sales of commercial refrigeration
products (4% of sales). For HVAC equipment, the increase in revenues was
primarily due to the realization of price increases and a higher mix of
high-efficiency air conditioning and heating systems, which sell at higher unit
prices, resulting in a 16% increase in the average selling price and a 1%
decrease in volume, as well as higher sales of commercial HVAC equipment.

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Gross Profit

Gross profit for the second quarter of 2022 increased $117.6 million, or 25%, as
compared to the second quarter of 2021, primarily as a result of increased
revenues. Gross profit margin for the quarter ended June 30, 2022 improved 210
basis-points to 27.9% versus 25.8% for the same period in 2021, primarily due to
the benefits of our use of technologies designed to optimize pricing and
margins, passing on price increases from our suppliers to our customers, and an
improved sales mix of higher-efficiency HVAC systems.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the second quarter of 2022
increased $48.1 million, or 18%, as compared to the second quarter of 2021,
primarily due to increased revenues. Selling, general and administrative
expenses as a percent of revenues for the second quarter of 2022 increased to
14.8% versus 14.4% for the same period in 2021. On a same-store basis, selling,
general and administrative expenses increased 17% as compared to the same period
in 2021, primarily due to increased higher variable selling costs driven by the
increase in revenues, investments in headcount, and new locations opened in
2022.

Other Income

Other income of $6.3 million and $5.5 million for the second quarters of 2022 and 2021, respectively, represented our share of the net income of Russell Sigler, Inc. ("RSI"), in which we have a 38.1% equity interest.

Interest Expense, Net

Interest expense, net for the second quarter of 2022 increased $0.7 million, or
148%, primarily as a result of an increase in average outstanding borrowings and
a higher effective interest rate, in each case under our revolving credit
facility, as compared to the same period in 2021.

Income Taxes

Income taxes increased to $60.5 million for the second quarter of 2022, as
compared to $44.2 million for the second quarter of 2021, and represent 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; therefore, Carrier is responsible
for its proportionate share of income taxes attributable to its share of
earnings from these joint ventures. The effective income tax rates attributable
to us were 23.8% and 23.4% for the quarters ended June 30, 2022 and 2021,
respectively. The increase was primarily due to higher state income taxes,
proportionately higher income, and lower share-based compensation deductions in
the second quarter of 2022 as compared to the same period in 2021.

Net Income Attributable to Watsco, Inc.

Net income attributable to Watsco, Inc. for the quarter ended June 30, 2022
increased $48.5 million, or 34%, compared to the same period in 2021. The
increase was primarily driven by higher revenues and expanded profit margins,
partially offset by higher selling, general and administrative expenses, income
taxes, and an increase in the net income attributable to the
non-controlling
interest.

First Half of 2022 Compared to First Half of 2021

Revenues

Revenues for the first half of 2022 increased $671.6 million, or 22%, as
compared to the first half of 2021, including $102.1 million attributable to the
new locations acquired and $23.9 million from other locations opened during the
preceding 12 months, offset by $7.3 million from locations closed. Sales of HVAC
equipment (69% of sales) increased 24%, sales of other HVAC products (28% of
sales) increased 27%, and sales of commercial refrigeration products (3% of
sales) increased 30%. On a same-store basis, revenues increased $552.9 million,
or 19%, as compared to the same period in 2021, reflecting an 18% increase in
sales of HVAC equipment (69% of sales), which included a 19% increase in sales
of residential HVAC equipment (20% increase in U.S. markets) and a 15% increase
in sales of commercial HVAC equipment, a 19% increase in sales of other HVAC
products (27% of sales) and a 30% increase in commercial refrigeration products
(4% of sales). For HVAC equipment, the increase in revenues was primarily due to
the realization of price increases and a higher mix of high-efficiency air
conditioning and heating systems, which sell at higher unit prices, resulting in
a 17% increase in the average selling price and a 3% increase in volume, as well
as higher sales of commercial HVAC equipment.

Gross Profit

Gross profit for the first half of 2022 increased $273.1 million, or 35%, as
compared to the first half of 2021, primarily as a result of increased revenues.
Gross profit margin for the six months ended June 30, 2022 improved 270
basis-points to 28.6% versus 25.9% for the same period in 2021, primarily due to
the benefits of our use of technologies designed to optimize pricing and
margins, passing on price increases from our suppliers to our customers, and an
improved sales mix of higher-efficiency HVAC systems.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first half of 2022
increased $113.8 million, or 23%, as compared to the first half of 2021,
primarily due to increased revenues from existing and newly acquired locations.
Selling, general and administrative expenses as a percentage of revenues for the
six months ended June 30, 2022 increased to 16.4% versus 16.2% for the same
period in 2021. On a same-store basis, selling, general and administrative
expenses increased 18% as compared to the same period in 2021, primarily due to
increased higher variable selling costs driven by the increase in revenues,
investments in headcount, and new locations opened in 2022.

Other Income

Other income of $10.4 million and $10.2 million for the first half of 2022 and
2021, respectively, represented our share of the net income of RSI, in which we
have a 38.1% equity interest.

Interest Expense, Net

Interest expense, net for the first half of 2022 increased $1.1 million, or 211%, primarily as a result of an increase in average outstanding borrowings under our revolving credit facility as compared to the same period in 2021.

Income Taxes

Income taxes increased to $96.1 million for the first half of 2022, as compared
to $59.9 million for the first half of 2021 and represent 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; therefore, Carrier is responsible for its
proportionate share of income taxes attributable to its share of earnings from
these joint ventures. The effective income tax rates attributable to us were
23.8% and 23.0% for the first half of 2022 and 2021, respectively. The increase
was primarily due to higher state income taxes, proportionately higher income,
and lower share-based compensation deductions in 2022 as compared to 2021.

Net Income Attributable to Watsco, Inc.

Net income attributable to Watsco, Inc. for the first half of 2022 increased
$106.7 million, or 54%, compared to the same period in 2021. The increase was
primarily driven by higher revenues and expanded profit margins, partially
offset by higher selling, general and administrative expenses, income taxes, and
an increase in the net income attributable to the
non-controlling
interest.

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 revolving credit facility;



  •   the ability to attract long-term capital with satisfactory terms;

• acquisitions, including joint ventures and investments in unconsolidated

          entities;



  •   dividend payments;



  •   capital expenditures; and



  •   the timing and extent of common stock repurchases.

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 in the short-term and the long-term, 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. Additionally, we may also generate cash through the issuance and
sale of our Common stock.

As of June 30, 2022, we had $129.0 million of cash and cash equivalents, of
which $99.3 million was held by foreign subsidiaries. The repatriation of cash
balances from our foreign subsidiaries could have adverse tax impacts or be
subject to capital controls; however, these balances are generally available to
fund the ordinary business operations of our foreign subsidiaries without legal
restrictions.

We believe that our operating cash flows, cash on hand, funds available for
borrowing under our revolving credit agreement, and funds available from sales
of our Common stock under our
at-the-market
offering program, each of which is described below, will be sufficient to meet
our liquidity needs for the foreseeable future. However, there can be no
assurance that our current sources of available funds will be sufficient to meet
our cash requirements.

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Our access to funds under our revolving credit agreement 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 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. 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. Our revolving
credit agreement provides that it may be amended to replace LIBOR with an
alternate benchmark rate. The impact of such an amendment cannot be entirely
predicted but could result in an increase in the cost of our debt. Additionally,
disruptions in the credit and capital markets could also result in increased
borrowing costs and/or reduced borrowing capacity under our revolving credit
agreement.

Working Capital

Working capital increased to $1,562.6 million at June 30, 2022 from $1,234.7 million at December 31, 2021, primarily due to higher levels of inventory in support of stronger business conditions, as well as deeper inventory stocking due to supply chain disruptions and increased cost of inventory due to inflation, and higher accounts receivable consistent with overall increased sales. These increases were partially offset by the timing of accounts payable and accrued liabilities.

Cash Flows

The following table summarizes our cash flow activity for the six months ended June 30, 2022 and 2021 (in millions):

                                               2022          2021        

Change

Cash flows provided by operating activities   $  73.1      $   81.9      $  (8.8 )
Cash flows used in investing activities       $ (18.9 )    $ (131.5 )    $ 112.6
Cash flows used in financing activities       $ (42.3 )    $   (1.0 )    $ (41.3 )


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

The decrease in net cash provided by operating activities was primarily due to
increases in the level of inventory, partially offset by an increase in net
income due to strong business conditions and timing of vendor payments in 2022
as compared to 2021.

Investing Activities

Net cash used in investing activities was lower in 2022 primarily due to cash consideration paid for businesses acquired in 2021.

Financing Activities

The increase in net cash used in financing activities was primarily attributable
to $21.0 million in proceeds from the
non-controlling
interest for its contribution to the acquisition of TEC in 2021 and an increase
in dividends paid in 2022.

Revolving Credit Agreement

We maintain an unsecured, $560.0 million syndicated multicurrency revolving
credit agreement, which we use 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 facility has a seasonal component
from October 1 to March 31, during which the borrowing capacity may be reduced
to $460.0 million at our discretion (which effectively reduces fees payable in
respect of the unused portion of the commitment), and we effected this reduction
in 2021. Included in the credit facility are a $100.0 million swingline
subfacility, a $10.0 million letter of credit subfacility, a $75.0 million
alternative currency borrowing sublimit and an $8.0 million Mexican borrowing
sublimit. The credit agreement matures on December 5, 2023.

At June 30, 2022 and December 31, 2021, $203.6 million and $89.0 million,
respectively, were outstanding under the revolving credit agreement. 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 June 30, 2022.

At-the-Market

Offering Program

On August 6, 2021, we entered into a sales agreement with Robert W. Baird & Co.
Inc. ("Baird"), which enables the Company to issue and sell shares of Common
stock in one or more negotiated transactions or transactions that are deemed to
be "at the market" offerings as defined in Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), for a maximum aggregate offering amount
of up to $300.0 million (the "ATM Program"). The offer and sale of our Common
stock pursuant to the ATM Program has been registered under the Securities Act
pursuant to our automatically effective shelf registration statement on Form
S-3
(File
No. 333-260758).
On February 25, 2022, we entered into an amended and restated sales agreement,
together with Baird and Goldman Sachs & Co. LLC ("GS"), for the purpose of
adding GS as an additional sales agent and making necessary conforming changes.
The amended and restated sales agreement otherwise retains all material terms of
the original sales agreement.

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As of June 30, 2022, no shares of Common stock had been sold under the ATM Program.

Contractual Obligations

On October 15, 2022, 975,622 shares of Class B restricted stock held by our
Chief Executive Officer ("CEO") will vest. The CEO may elect to satisfy the tax
withholding obligations in connection with the vesting of the restricted stock
either by the Company's withholding of shares otherwise deliverable to the CEO,
or in cash, or any combination of the two. If the CEO elects to satisfy his tax
withholding obligation through the Company's withholding of shares, then we will
satisfy the withholding tax obligations in cash. Based on the closing price of
Watsco's Class B common stock and withholding tax rates in effect at June 30,
2022, the estimated withholding tax obligation would have been approximately
$94.0 million had the shares vested on June 30, 2022. We intend to satisfy any
such withholding obligations using cash on hand or borrowing availability under
our revolving credit agreement described above.

Investment in Unconsolidated Entity

Carrier Enterprise I has a 38.1% ownership interest in RSI, an HVAC distributor
operating from 35 locations in the Western U.S. Our proportionate share of the
net income of RSI is included in other income in our condensed consolidated
unaudited statements of income.

Carrier Enterprise I is a party to a shareholders' agreement (the "Shareholders'
Agreement") with RSI and its shareholders. Pursuant to the Shareholders'
Agreement, RSI's shareholders have the right to sell, and Carrier Enterprise I
has the obligation to purchase, their respective shares of RSI for a purchase
price determined based on either book value or a multiple of EBIT, the latter of
which Carrier Enterprise I used to calculate the price paid for its investment
in RSI. RSI's shareholders may transfer their respective shares of RSI common
stock only to members of the Sigler family or to Carrier Enterprise I, and, at
any time from and after the date on which Carrier Enterprise I owns 85% or more
of RSI's outstanding common stock, it has the right, but not the obligation, to
purchase from RSI's shareholders the remaining outstanding shares of RSI common
stock. At June 30, 2022, the estimated purchase amount we would be contingently
liable for was approximately $306.0 million. We believe that our operating cash
flows, cash on hand, and funds available for borrowing under our revolving
credit agreement would be sufficient to purchase any additional ownership
interests in RSI.

Acquisitions

On August 20, 2021, one of our wholly owned subsidiaries acquired MIS, a distributor of air conditioning and heating products operating from six locations in Pennsylvania. Consideration for the purchase consisted of $3.2 million in cash and the issuance of 3,627 shares of Common stock having a fair value of $1.0 million, net of cash acquired of $0.2 million.

On May 7, 2021, we acquired certain assets and assumed certain liabilities of
ACME, a distributor of air conditioning, heating, and refrigeration products,
operating from 18 locations in Louisiana and Mississippi, for $22.9 million less
certain average revolving indebtedness. Consideration for the purchase consisted
of $18.1 million in cash, 8,492 shares of Common stock having a fair value of
$2.6 million, and $3.1 million repayment of indebtedness, net of cash acquired
of $1.3 million.

On April 9, 2021, we acquired certain assets and assumed certain liabilities
comprising the HVAC distribution business of Temperature Equipment Corporation,
an HVAC distributor operating from 32 locations in Illinois, Indiana, Kansas,
Michigan, Minnesota, Missouri and Wisconsin. We formed a new, stand-alone joint
venture with Carrier, TEC, which operates this business. We have an 80%
controlling interest in TEC, and Carrier has a 20%
non-controlling
interest. Consideration for the purchase was paid in cash, consisting of
$105.2 million paid to Temperature Equipment Corporation (Carrier contributed
$21.0 million and we contributed $84.2 million) and $1.5 million for repayment
of indebtedness.

We continually evaluate potential acquisitions and/or joint ventures and
investments in unconsolidated entities. We routinely hold discussions with
several 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 $4.15 and $3.725 per share of Common stock and Class B
common stock during the six months ended June 30, 2022 and 2021, respectively.
On July 1, 2022, our Board of Directors declared a regular quarterly cash
dividend of $2.20 per share of both Common and Class B common stock that was
paid on July 29, 2022 to shareholders of record as of July 15, 2022. Future
dividends and/or changes in dividend rates are at the sole discretion of the
Board of Directors and depend upon factors including, but not limited to, cash
flow generated by operations, profitability, financial condition, cash
requirements, and future prospects.

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Company Share Repurchase Program

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. Shares repurchased under the program are
accounted for using the cost method and result in a reduction of shareholders'
equity. We last repurchased shares under this plan in 2008. 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 June 30, 2022,
there were 1,129,087 shares remaining authorized for repurchase under the
program.

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