WATSCO INC

Previous wording

Watsco, Inc. was incorporated in Florida in 1956, and, together with its subsidiaries (collectively, “Watsco,” the “Company,” 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, 2026, we operated from 723 locations in 43 U.S. States, Canada, Mexico, and Puerto Rico with additional market coverage on an export basis to portions of Latin America and the Caribbean.

Current wording

Watsco, Inc. was incorporated in Florida in 1956, and, together with its subsidiaries (collectively, “Watsco,” the “Company,” 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 September 30, 2026, we operated from 722 locations in 43 U.S. States, Canada, Mexico, and Puerto Rico with additional market coverage on an export basis to portions of Latin America and the Caribbean.

Previous wording

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. Based on estimates validated by independent sources, we averted an estimated 27.7 million metric tons of CO 2 e emissions from January 1, 2020 to June 30, 2026 through the sale of replacement residential HVAC systems at higher-efficiency standards.

Current wording

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. Based on estimates validated by independent sources, we averted an estimated 28.4 million metric tons of CO 2 e emissions from January 1, 2020 to September 30, 2026 through the sale of replacement residential HVAC systems at higher-efficiency standards.

Previous wording

Any material interruption of the business arrangement with Gree under the Agreement could temporarily affect certain of our subsidiaries and may have an adverse impact on our consolidated financial results. For the 12-month period ended June 30, 2026, less than 3% of our consolidated revenues were from the sale of Gree-branded products.

Current wording

Any material interruption of the business arrangement with Gree under the Agreement could temporarily affect certain of our subsidiaries and may have an adverse impact on our consolidated financial results. For the 12-month period ended September 30, 2026, approximately 2% of our consolidated revenues were from the sale of Gree-branded products.

Previous wording

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, 2026 and 2025:

Current wording

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 ended September 30, 2026 and 2025:

Previous wording

In the following narratives, computations and other information referring to “same-store basis” exclude the effects of locations closed, acquired, or opened, in each case during the immediately preceding 12 months, unless such locations are within close geographical proximity to existing locations. At June 30, 2026 and 2025, five and two locations, respectively, that we opened during the immediately preceding 12 months were near existing locations and were therefore included in “same-store basis” information.

Current wording

In the following narratives, computations and other information referring to “same-store basis” exclude the effects of locations closed, acquired, or opened, in each case during the immediately preceding 12 months, unless such locations are within close geographical proximity to existing locations. At both September 30, 2026 and 2025, three locations that we opened during the immediately preceding 12 months were near existing locations and were therefore included in “same-store basis” information.

Previous wording

Second Quarter of 2026 Compared to Second Quarter of 2025

Current wording

Third Quarter of 2026 Compared to Third Quarter of 2025

Previous wording

The increase in revenues for the second quarter of 2026 included $29.7 million attributable to new locations acquired and $0.7 million from other locations opened during the preceding 12 months, offset by $2.5 million from locations closed.

Current wording

The increase in revenues for the third quarter of 2026 included $77.8 million attributable to new locations acquired and $1.1 million from other locations opened during the preceding 12 months, offset by $2.7 million from locations closed.

Previous wording

The following table presents our revenues (excluding acquisitions) for the second quarter of 2026, as a percentage of sales by major product lines, and the related percentage change in revenues from the prior period:

Current wording

The following table presents our revenues (excluding acquisitions) for the third quarter of 2026, as a percentage of sales by major product lines, and the related percentage change in revenues from the prior period:

Previous wording

HVAC equipment sales comprise various products including, but not limited to, residential ducted and ductless systems, furnaces, and other indoor components, as well as commercial HVAC systems. Within HVAC equipment, sales of residential products increased 5% (reflecting a 5% increase in U.S. markets and a 1% increase in international markets) and sales of commercial products decreased 8% (reflecting an 8% decrease in U.S. markets and a 7% decrease in international markets). Domestic sales of residential compressor-bearing systems (ducted and ductless) reflect a 2% increase in units and a 2% increase in average selling price. The increase in unit volume was primarily due to stabilization of the HVAC equipment market after A2L product transition-related impacts experienced during 2025.

Current wording

HVAC equipment sales comprise various products including, but not limited to, residential ducted and ductless systems, furnaces, and other indoor components, as well as commercial HVAC systems. Within HVAC equipment, sales of residential products increased 7% (reflecting a 7% increase in U.S. markets and a 13% increase in international markets) and sales of commercial products decreased 5% (reflecting a 10% decrease in U.S. markets and a 13% increase in international markets). Sales of residential compressor-bearing systems (ducted and ductless) reflect a 5% increase in units and a 2% increase in average selling price. The increase in unit volume was primarily due to stabilization of the HVAC equipment market after A2L product transition-related impacts experienced during 2025.

Previous wording

On a same-store basis, selling, general and administrative expenses increased 2% as compared to 2025 primarily due to higher facilities and transportation costs, partially offset by lower salaries.

Current wording

On a same-store basis, selling, general and administrative expenses increased 5% as compared to 2025 primarily due to higher performance-based compensation, delivery and other variable expenses, and facilities costs, as well as continued investments in technology.

Previous wording

Other income of $8.4 million and $7.4 million for the second quarters of 2026 and 2025, respectively, represented our share of the net income of Russell Sigler, Inc. (“RSI”), in which Carrier Enterprise I has a 38.4% equity interest. Carrier Enterprise I is one of our joint ventures with Carrier, in which we have an 80% controlling interest.

Current wording

Other income of $9.7 million and $9.5 million for the third quarters of 2026 and 2025, respectively, represented our share of the net income of Russell Sigler, Inc. (“RSI”), in which Carrier Enterprise I has a 38.4% equity interest. Carrier Enterprise I is one of our joint ventures with Carrier, in which we have an 80% controlling interest.

Previous wording

Interest income, net for the second quarter of 2026 increased $1.2 million, or 50%, primarily due to higher cash and short-term cash investment balances on hand partially offset by lower interest rates earned on the balances for the 2026 period as compared to the same period in 2025.

Current wording

Interest income, net for the third quarter of 2026 increased $0.9 million, or 23%, primarily due to higher cash and short-term cash investment balances on hand partially offset by lower interest rates earned on the balances for the 2026 period as compared to the same period in 2025.

Previous wording

Income taxes represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to our joint ventures with Carrier, 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 increase in the effective income tax rate was primarily due to lower share-based compensation deductions and reduced tax credits, including purchased tax credits, combined with lower earnings in 2026 as compared to 2025.

Current wording

Income taxes represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to our joint ventures with Carrier, 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 decrease in the effective income tax rate was primarily due to lower earnings and higher tax credits, partially offset by lower share-based compensation deductions in 2026 as compared to 2025.

Previous wording

Net income attributable to Watsco, Inc. for the first half of 2026 decreased $21.3 million, or 8%, compared to the same period in 2025, primarily due to lower gross profit and higher selling, general and administrative expenses, partially offset by lower income taxes and a decrease in the net income attributable to the non-controlling interest.

Current wording

Net income attributable to Watsco, Inc. for the quarter ended September 30, 2026 decreased $6.2 million, or 4%, compared to the same period in 2025, primarily due to higher selling, general and administrative expenses, partially offset by higher gross profit and interest income and lower income taxes and net income attributable to the non-controlling interest.

Previous wording

The increase in revenues for the first half of 2026 included $38.3 million attributable to new locations acquired and $1.6 million from other locations opened during the preceding 12 months, partially offset by $6.7 million from locations closed.

Current wording

The increase in revenues for the nine months ended September 30, 2026 included $116.0 million attributable to new locations acquired and $2.7 million from other locations opened during the preceding 12 months, partially offset by $9.4 million from locations closed.

Previous wording

The following table presents our revenues (excluding acquisitions) for the six months ended June 30, 2026 as a percentage of sales by major product lines, and the related percentage change in revenues from the prior period:

Current wording

The following table presents our revenues (excluding acquisitions) for the nine months ended September 30, 2026 as a percentage of sales by major product lines, and the related percentage change in revenues from the prior period:

Previous wording

HVAC equipment sales comprise various products including, but not limited to, residential ducted and ductless systems, furnaces, and other indoor components, as well as commercial HVAC systems. Within HVAC equipment, sales of residential products increased 2% (reflecting a 4% increase in U.S. markets and a 13% decrease in international markets) and sales of commercial products decreased 4% (reflecting a 5% decrease in U.S. markets and a 1% decrease in international markets). Domestic sales of residential compressor-bearing systems (ducted and ductless) reflect a 2% decrease in units and a 4% increase in average selling price. The increase in average selling price was primarily due to the higher proportionate mix of A2L products in 2026 as compared to the same period in 2025.

Current wording

HVAC equipment sales comprise various products including, but not limited to, residential ducted and ductless systems, furnaces, and other indoor components, as well as commercial HVAC systems. Within HVAC equipment, sales of residential products increased 4% (reflecting a 5% increase in U.S. markets and a 5% decrease in international markets) and sales of commercial products decreased 4% (reflecting a 7% decrease in U.S. markets and a 4% increase in international markets). Sales of residential compressor-bearing systems (ducted and ductless) reflect a 1% decrease in units and a 4% increase in average selling price. The increase in average selling price was primarily due to the higher proportionate mix of A2L products in 2026 as compared to the same period in 2025.

Previous wording

Gross profit margin declined 100 basis-points primarily due to the impact of the timing and magnitude of OEM pricing actions as well as the sales mix for HVAC equipment in 2026 as compared to the same period in 2025.

Current wording

Gross profit margin declined 110 basis-points primarily due to the impact of the timing and magnitude of OEM pricing actions as well as the stronger sales mix of HVAC equipment in 2026 as compared to the same period in 2025.

Previous wording

On a same-store basis, selling, general and administrative expenses increased 1% as compared to the same period in 2025 primarily due to higher facilities costs, partially offset by lower salaries.

Current wording

On a same-store basis, selling, general and administrative expenses increased 2% as compared to the same period in 2025 primarily due to higher facilities, variable selling costs, and delivery costs, as well as increased technology investments, partially offset by lower salaries and benefits.

Previous wording

Other income of $13.9 million and $12.5 million for the first half of 2026 and 2025, respectively, represented our share of the net income of RSI, in which Carrier Enterprise I has a 38.4% equity interest.

Current wording

Other income of $23.6 million and $22.0 million for the nine months ended September 30, 2026 and 2025, respectively, represented our share of the net income of RSI, in which Carrier Enterprise I has a 38.4% equity interest.

Previous wording

Interest income, net for the first half of 2026 increased $2.2 million, or 29%, primarily due to higher cash and short-term cash investment balances on hand partially offset by lower interest rates earned on the balances for the 2026 period as compared to the same period in 2025.

Current wording

Interest income, net for the nine months ended September 30, 2026 increased $3.1 million, or 27%, primarily due to higher cash and short-term cash investment balances on hand partially offset by lower interest rates earned on the balances for the 2026 period as compared to the same period in 2025.

Previous wording

Income taxes represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to our joint ventures with Carrier, 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 decrease in the effective income tax rate was primarily due to higher proportional earnings in lower tax jurisdictions in 2026 as compared to 2025.

Current wording

Income taxes represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to our joint ventures with Carrier, 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 rate was flat in 2026 as compared to 2025.

Previous wording

Net income attributable to Watsco, Inc. for the quarter ended June 30, 2026 decreased $20.3 million, or 11%, compared to the same period in 2025, primarily due to lower gross profit and higher selling, general and administrative expenses, partially offset by lower income taxes and a decrease in the net income attributable to the non-controlling interest.

Current wording

Net income attributable to Watsco, Inc. for the nine months ended September 30, 2026 decreased $27.5 million, or 6%, compared to the same period in 2025, primarily due to lower gross profit and higher selling, general and administrative expenses, partially offset by lower income taxes and a decrease in the net income attributable to the non-controlling interest.

Previous wording

As of June 30, 2026, we had $364.2 million of cash and cash equivalents, of which $108.8 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 also had $100.0 million of short-term cash investments as of June 30, 2026, which consisted of a certificate of deposit that matures in September 2026.

Current wording

As of September 30, 2026, we had $498.7 million of cash and cash equivalents, of which $103.5 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 also had $150.0 million of short-term cash investments as of September 30, 2026, which consisted of certificates of deposit with varying maturities through April 2027.

Previous wording

Working capital increased to $2,374.3 million at June 30, 2026 from $2,236.8 million at December 31, 2025, reflecting 25 new locations added by the acquisition of Jackson on June 1, 2026, which added $63.8 million of working capital. Excluding these new locations, working capital increased to $2,310.5 million due to: (i) higher inventory driven by the seasonal ramp-up in inventories in connection with our selling season; and (ii) higher accounts receivable, partially offset by lower cash and short-term cash investments.

Current wording

Working capital increased to $2,424.4 million at September 30, 2026 from $2,236.8 million at December 31, 2025, reflecting 25 new locations added by the acquisition of Jackson on June 1, 2026, which added $61.8 million of working capital. Excluding these new locations, working capital increased to $2,362.6 million due to higher inventory and higher accounts receivable. These increases were partially offset by higher accounts payable and accrued expenses and lower cash and short-term cash investments.

Previous wording

The following table summarizes our cash flow activity for the six months ended June 30, 2026 and 2025 (in millions):

Current wording

The following table summarizes our cash flow activity for the nine months ended September 30, 2026 and 2025 (in millions):

Previous wording

Net cash used in operating activities was lower primarily due to the timing of vendor payments and a lower increase in inventory, which were partially offset by an increase in accounts receivable due to higher sales in 2026 as compared to 2025 .

Current wording

Net cash provided by operating activities was higher primarily due to the timing of vendor payments, which was partially offset by an increase in inventory and an increase in accounts receivable due to higher sales in 2026 as compared to 2025.

Previous wording

Net cash provided by investing activities decreased primarily due to lower net proceeds from certificates of deposit that matured in 2026 as compared to 2025.

Current wording

Net cash provided by investing activities increased primarily due to higher net proceeds from certificates of deposit that matured in 2026 as compared to 2025.

Previous wording

We maintain an unsecured, five-year $600.0 million syndicated multicurrency revolving credit agreement, which may be used for, among other things, funding 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 revolving credit facility has a seasonal component from October 1 to March 31, during which the borrowing capacity may be reduced to $500.0

Current wording

We maintain an unsecured, syndicated multicurrency revolving credit agreement, which may be used for, among other things, funding 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. On October 21, 2026, we increased the aggregate borrowing capacity of our revolving credit agreement from $600.0 million to $750.0 million. The revolving credit facility has a seasonal component from September 1 to March 1 of each calendar year, during which the borrowing capacity may be reduced to $650.0 million, $550.0 million, or $450.0 million at our discretion (which effectively reduces fees payable in respect of the unused portion of the commitment). Included in the revolving credit facility are a $150.0 million alternative currency borrowing sublimit, a $125.0 million swing line loan sublimit, and a $10.0 million letter of credit sublimit. The credit agreement matures on October 21, 2031.

Previous wording

Carrier Enterprise I has a 38.4% ownership interest in RSI, an HVAC distributor operating from 36 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.

Current wording

Carrier Enterprise I has a 38.4% ownership interest in RSI, an HVAC distributor operating from 38 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.

Previous wording

Carrier Enterprise I is a party to a shareholders’ agreement with RSI and its shareholders (the “RSI Shareholders’ Agreement”), consisting of five Sigler second generation family siblings and their affiliates, who collectively own 55.4% of RSI (the “RSI Majority Holders”) and certain next-generation Sigler family members and a RSI employee, who collectively own 6.2% of RSI (the “RSI Minority Holders” and, together with the RSI Majority Holders, the “RSI Shareholders”). Pursuant to the RSI Shareholders’ Agreement, the RSI 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 the higher of book value or a multiple of EBIT, the latter of which Carrier Enterprise I used to calculate the price for its 38.4% investment held in RSI. The RSI 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 the RSI Shareholders the remaining outstanding shares of RSI common stock. At June 30, 2026, using the criteria set forth in the RSI Shareholders’ Agreement, the valuation of the RSI Shareholders’ RSI common stock was approximately $472.0 million.

Current wording

Carrier Enterprise I is a party to a shareholders’ agreement with RSI and its shareholders (the “RSI Shareholders’ Agreement”), consisting of five Sigler second generation family siblings and their affiliates, who collectively own 55.4% of RSI (the “RSI Majority Holders”) and certain next-generation Sigler family members and a RSI employee, who collectively own 6.2% of RSI (the “RSI Minority Holders” and, together with the RSI Majority Holders, the “RSI Shareholders”). Pursuant to the RSI Shareholders’ Agreement, the RSI 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 the higher of book value or a multiple of EBIT, the latter of which Carrier Enterprise I used to calculate the price for its 38.4% investment held in RSI. The RSI 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 the RSI Shareholders the remaining outstanding shares of RSI common stock. At September 30, 2026, using the criteria set forth in the RSI Shareholders’ Agreement, the valuation of the RSI Shareholders’ RSI common stock was approximately $487.0 million.

Previous wording

We paid cash dividends of $6.30 and $5.70 per share on common stock during the six months ended June 30, 2026 and 2025, respectively. On July 1, 2026, our Board of Directors declared a regular quarterly cash dividend of $3.30 per share on common stock that was paid on July 31, 2026 to shareholders of record as of July 16, 2026. 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, prospects, and other factors deemed relevant by our Board of Directors.

Current wording

We paid cash dividends of $9.60 and $8.70 per share on common stock during the nine months ended September 30, 2026 and 2025, respectively. On October 1, 2026, our Board of Directors declared a regular quarterly cash dividend of $3.30 per share on common stock that was paid on October 30, 2026 to shareholders of record as of October 16, 2026. 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, prospects, and other factors deemed relevant by our Board of Directors.

Previous wording

In March 2024, we implemented the Watsco, Inc. Dividend Reinvestment Plan (the “DRIP”), under which existing shareholders may, in accordance with the DRIP, acquire up to an aggregate of 300,000 shares of each of Common and Class B common stock, as applicable, by reinvesting all or a portion of the cash dividends paid on such shareholders’ shares of common stock. The DRIP has been registered under the Securities Act pursuant to our automatically effective shelf registration statement on Form S-3 (File No. 333-282975). During the quarters ended June 30, 2026 and 2025, 9,456 and 16,553 shares of our common stock, respectively, were issued under the DRIP. During the six months ended June 30, 2026 and 2025, 19,346 and 30,495 shares of our common stock, respectively, were issued under the DRIP.

Current wording

In March 2024, we implemented the Watsco, Inc. Dividend Reinvestment Plan (the “DRIP”), under which existing shareholders may, in accordance with the DRIP, acquire up to an aggregate of 300,000 shares of each of Common and Class B common stock, as applicable, by reinvesting all or a portion of the cash dividends paid on such shareholders’ shares of common stock. The DRIP has been registered under the Securities Act pursuant to our automatically effective shelf registration statement on Form S-3 (File No. 333-282975). During the quarters ended September 30, 2026 and 2025, 10,206 and 17,256 shares of our common stock, respectively, were issued under the DRIP. During the nine months ended September 30, 2026 and 2025, 29,552 and 47,751 shares of our common stock, respectively, were issued under the DRIP.

Previous wording

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 stock have been repurchased at a cost of $114.4 million since the inception of the program. At June 30, 2026, there were 1,129,087 shares remaining authorized for repurchase under the program.

Current wording

26 of 30 result in a reduction of shareholders’ equity. We last repurchased shares under this plan in 2008. In aggregate, 6,370,913 shares of common stock have been repurchased at a cost of $114.4 million since the inception of the program. At September 30, 2026, there were 1,129,087 shares remaining authorized for repurchase under the program.