WATSCO, INC. 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;
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Table of Contents • 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; • the effect of inflation; • 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 endedDecember 31, 2021 , as well as the other documents and reports that we file with theSEC . 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 Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Company Overview
Watsco, Inc. was incorporated inFlorida 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 inNorth America . AtSeptember 30, 2022 , we operated from 675 locations in 42 U.S. States,Canada ,Mexico , andPuerto Rico with additional market coverage on an export basis to portions ofLatin America and theCaribbean . 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 and Economic and Marketplace Dynamics
Since
COVID-19
was declared a pandemic inMarch 2020 , it has had widespread impacts on global financial markets and business practices. Although we learned to navigate COVID-19 while maintaining our operations in all material respects, the pandemic impacted our operations, and the operations of our customers and suppliers throughout 2020 and into 2021. However, as 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, which include inflation, supply chain disruptions, and labor shortages, rather than pandemic-related issues, such as quarantines, location closures, mandated restrictions, employee illnesses, and travel restrictions. 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 18 of 27
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during the first nine months of 2022 and we estimate the impact was approximately 3% to 4% of lost revenues. We cannot reasonably estimate the future impact of supply chain disruptions to the extent that these disruptions become more pronounced than current conditions. Despite these disruptions, we experienced growth in sales of residential units during the first nine months of 2022. We intend to continue to actively monitor the situation and may take further actions that alter our business. 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 theUnited States Department of Energy , heating and air conditioning accounts for roughly half of household energy consumption inthe 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 inthe 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 theNorthern U.S. and to 15 SEER from 14 SEER for theSouthern U.S. ). 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 23% organically during the nine months endedSeptember 30, 2022 , outpacing the overall growth rate of 17% for residential HVAC equipment inthe United States . Based on estimates validated by independent sources, we averted an estimated 14.2 million metric tons of CO 2 e emissions during the periodJanuary 1, 2020 toSeptember 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 theSun Belt states andPuerto Rico , and its export division inMiami, 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 theU.S. Virgin Islands toDelaware effectiveDecember 31, 2019 , following whichCarrier InterAmerica Corporation became a separate operating entity in which we have an 80% controlling interest and Carrier has a 20% non-controlling interest. OnAugust 1, 2019 , Carrier Enterprise I acquired substantially all of the HVAC assets and assumed certain of the liabilities ofPeirce-Phelps, Inc. , an HVAC distributor operating inPennsylvania ,New Jersey , andDelaware . 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 theNortheast U.S. , and we contributed certain locations operating asHomans Associates LLC ("Homans"), aWatsco subsidiary, in theNortheast U.S. Subsequently, Carrier Enterprise II purchased Carrier's distribution operations inMexico . We have an 80% controlling interest in Carrier Enterprise II, and Carrier has a 20% non-controlling interest. EffectiveMay 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 inCanada to Carrier Enterprise III. We have a 60% controlling interest in Carrier Enterprise III, and Carrier has a 40% non-controlling interest. OnApril 9, 2021 , we acquired certain assets and assumed certain liabilities comprising the HVAC distribution business ofTemperature Equipment Corporation , an HVAC distributor operating from 32 locations inIllinois ,Indiana ,Kansas ,Michigan ,Minnesota ,Missouri andWisconsin . 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 withU.S. generally accepted accounting principles. The preparation of these condensed consolidated unaudited financial statements requires 19 of 27
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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 theSEC onFebruary 25, 2022 . We believe that there have been no significant changes during the quarter endedSeptember 30, 2022 to the critical accounting estimates disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
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 nine months endedSeptember 30, 2022 and 2021: Quarter Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 72.9 72.9 72.0 73.7 Gross profit 27.1 27.1 28.0 26.3 Selling, general and administrative expenses 15.8 15.8 16.2 16.1 Other income 0.3 0.3 0.3 0.3 Operating income 11.6 11.6 12.2 10.6 Interest expense, net 0.0 0.0 0.0 0.0 Income before income taxes 11.6 11.6 12.2 10.6 Income taxes 2.4 2.3 2.6 2.1 Net income 9.1 9.2 9.6 8.5 Less: net income attributable to non-controlling interest 1.4 1.3
1.5 1.3
Net income attributable to Watsco, Inc. 7.7 % 7.9 %
8.1 % 7.1 %
Note: Due to rounding, percentages may not add up to 100.
The following narratives reflect our acquisitions ofMakdad Industrial Supply Co., Inc. ("MIS") inAugust 2021 ,Acme Refrigeration of Baton Rouge LLC ("ACME") inMay 2021 , andTemperature Equipment Corporation inApril 2021 . We did not acquire any businesses during the quarter or nine months endedSeptember 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. AtSeptember 30, 2022 and 2021, eleven and zero 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 endedSeptember 30, 2022 : Number of LocationsSeptember 30, 2021 673 Opened 4 Closed (6 )December 31, 2021 671 Opened 10 Closed (6 )September 30, 2022 675 20 of 27
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Third Quarter of 2022 Compared to Third Quarter of 2021
Revenues
Revenues for the third quarter of 2022 increased$253.2 million , or 14%, including$2.1 million attributable to new locations acquired and$6.6 million from other locations opened during the preceding 12 months, offset by$4.0 million from locations closed. Sales of HVAC equipment (69% of sales) increased 13%, which included 14% growth inU.S. markets (13% increase in sales of residential HVAC equipment and a 20% increase in sales of commercial HVAC equipment), sales of other HVAC products (27% of sales) increased 15% and sales of commercial refrigeration products (4% of sales) increased 18%. 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 14% increase in the average selling price and a 1% decrease in volume, as well as higher sales of commercial HVAC equipment. On a same-store basis, revenues increased$248.5 million , or 14%, as compared to the same period in 2021. Hurricane Ian interrupted sales and operations in several of our markets inFlorida , our largest U.S. market, during the last week ofSeptember 2022 . The materiality of the disruptions was not significant to the third quarter results of operations. AllFlorida locations impacted by the storm are open and operational as of the date of this filing. Gross Profit Gross profit for the third quarter of 2022 increased$68.2 million , or 14%, primarily as a result of increased revenues. Gross profit margin for the quarter endedSeptember 30, 2022 remained consistent with the same period in 2021 at 27.1%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the third quarter of 2022
increased
Other Income
Other income of$6.9 million and$6.1 million for the third quarters of 2022 and 2021, respectively, represented our share of the net income ofRussell Sigler, Inc. ("RSI"), in which we have a 38.1% equity interest.
Interest Expense, Net
Interest expense, net for the third quarter of 2022 increased$0.3 million , or 119%, 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$49.6 million for the third quarter of 2022, as compared to$41.7 million for the third 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 22.8% for the quarters endedSeptember 30, 2022 and 2021, respectively. The increase was primarily due to higher state income taxes and proportionately higher income in the third quarter of 2022 as compared to tax credits and share-based compensation deductions in the third quarter of 2021.
Net Income Attributable to
Net income attributable toWatsco for the quarter endedSeptember 30, 2022 increased$16.8 million , or 12%, compared to the same period in 2021. The increase was primarily driven by higher revenues, partially offset by higher income taxes and an increase in the net income attributable to the non-controlling interest.
Nine Months Ended
Revenues Revenues for the nine months endedSeptember 30, 2022 increased$924.8 million , or 19%, including$104.2 million attributable to new locations acquired and$30.4 million from other locations opened during the preceding 12 months, offset by$11.2 million from locations closed. Sales of HVAC equipment (69% of sales) increased 18%, sales of other HVAC products (27% of sales) increased 20% and sales of commercial refrigeration products (4% of sales) increased 25%. On a same-store basis, revenues increased$801.4 million , or 17%, as compared to the same period in 2021, reflecting a 16% increase in sales of HVAC equipment (69% of sales), 21 of 27
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which included 17% growth inU.S. markets for both residential and commercial HVAC equipment, an 18% increase in sales of other HVAC products (27% of sales) and a 25% 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 15% increase in the average selling price and a 2% increase in volume, as well as higher sales of commercial HVAC equipment. Gross Profit
Gross profit for the nine months ended
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months endedSeptember 30, 2022 increased$153.4 million , or 20%, primarily due to increased revenues and newly acquired locations. Selling, general and administrative expenses as a percentage of revenues increased to 16.2% for the nine months endedSeptember 30, 2022 as compared to 16.1% for the same period in 2021. On a same-store basis, selling, general and administrative expenses increased 16% as compared to the same period in 2021, primarily due to increased higher variable selling costs driven by the increase in revenues, investments in employee headcount, technology, and new locations opened in 2022.
Other Income
Other income of
Interest Expense, Net
Interest expense, net for the nine months endedSeptember 30, 2022 increased$1.4 million , or 184%, 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$145.7 million for the nine months endedSeptember 30, 2022 , as compared to$101.6 million for the nine months endedSeptember 30, 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 22.9% for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase was primarily due to higher state income taxes and proportionately higher income in 2022 as compared to tax credits and share-based compensation deductions in 2021.
Net Income Attributable to
Net income attributable toWatsco for the nine months endedSeptember 30, 2022 increased$123.4 million , or 36%, compared to the same period in 2021. The increase was primarily driven by higher revenues and expanded profit margins, partially offset by higher 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.
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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 ofSeptember 30, 2022 , we had$130.2 million of cash and cash equivalents, of which$103.3 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 ATM Program (as defined below), 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. 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. OnMarch 5, 2021 , theUnited 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 afterJune 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$1,470.4 million atSeptember 30, 2022 from$1,234.7 million atDecember 31, 2021 , due to (i) higher inventory balances primarily due to the general impact of inflation, greater inventory requirements resulting from strong business conditions, and more extensive inventories in response to various supply chain disruptions and (ii) higher accounts receivable consistent with overall increased sales, which were offset by an increase in accounts payable and accrued liabilities.
Cash Flows
The following table summarizes our cash flow activity for the nine months ended
2022 2021 Change
Cash flows provided by operating activities
39.2
Cash flows used in investing activities
113.7
Cash flows used in financing activities
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 increase in net cash provided by operating activities was primarily due to higher net income, partially offset by increases in the level of inventory 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 higher borrowings under our revolving credit agreement and an increase in dividends paid in 2022, as well as$21.0 million in proceeds from the non-controlling interest for its contribution to the acquisition of TEC in 2021. 23 of 27
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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 fromOctober 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 onDecember 5, 2023 . AtSeptember 30, 2022 andDecember 31, 2021 ,$8.8 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 atSeptember 30, 2022 .
At-the-Market
Offering Program
OnAugust 6, 2021 , we entered into a sales agreement withRobert 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). OnFebruary 25, 2022 , we entered into an amended and restated sales agreement, together with Baird andGoldman 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.
As of
Contractual Obligations OnOctober 15, 2022 , 975,622 shares of Class B restricted stock held by an affiliate of our Chief Executive Officer ("CEO") vested. The vested shares had a value of$265.1 million based on the closing price ofWatsco's Class B common stock as of that date. This vested value was treated as taxable compensation to our CEO for income tax purposes and was subject to statutory withholding. Upon vesting, we funded$104.3 million in statutory withholding, using a combination of cash on hand and borrowing availability under our revolving credit agreement described above, and such amount was satisfied by the CEO through a cash payment of$19.7 million and by surrendering of 311,408 shares of Watsco Class B common stock. Accordingly, 664,214 shares of Watsco Class B common stock were retained by the affiliate of our CEO, and we retired the surrendered shares. The value of the vested shares will be deducted on our 2022 income tax return and our provision for income taxes will reflect an income tax benefit and related reduction in our effective tax rate.
Investment in Unconsolidated Entity
Carrier Enterprise I has a 38.1% ownership interest in RSI, an HVAC distributor operating from 35 locations in theWestern 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. AtSeptember 30, 2022 , the estimated purchase amount we would be contingently liable for was approximately$324.0 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
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OnMay 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 inLouisiana andMississippi , 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 . OnApril 9, 2021 , we acquired certain assets and assumed certain liabilities comprising the HVAC distribution business ofTemperature Equipment Corporation , an HVAC distributor operating from 32 locations inIllinois ,Indiana ,Kansas ,Michigan ,Minnesota ,Missouri andWisconsin . 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 toTemperature 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$6.35 and$5.675 per share of Common stock and Class B common stock during the nine months endedSeptember 30, 2022 and 2021, respectively. OnOctober 3, 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 onOctober 31, 2022 to shareholders of record as ofOctober 17, 2022 . OnOctober 18, 2022 , our Board of Directors approved an increase to the annual cash dividend per share of Common and Class B common stock to$9.80 per share from$8.80 per share, effective with the quarterly dividend that will be paid inJanuary 2023 . 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.
Company Share Repurchase Program
InSeptember 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. AtSeptember 30, 2022 , there were 1,129,087 shares remaining authorized for repurchase under the program.
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