WATSCO INC

September 30, 2026

(In thousands, except share and per share data)

BASIS OF PRESENTATION

Basis of Consolidation

Watsco, Inc. (collectively with its subsidiaries, “Watsco,” the “Company,” “we,” “us,” or “our”) was incorporated in Florida in 1956 and is the largest distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America. The accompanying September 30, 2026 interim condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in the condensed consolidated unaudited financial statements included herein. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025.

The condensed consolidated unaudited financial statements include (i) the accounts of Watsco and its wholly owned subsidiaries, (ii) the accounts offive U.S. joint ventures and their subsidiaries with Carrier Global Corporation, which we refer to as Carrier, in which we have an 80% controlling interest and Carrier has a 20% non-controlling interest, (iii) the accounts of a Canadian joint venture with Carrier, in which we have a 60% controlling interest and Carrier has a 40% non-controlling interest, and (iv) a 38.4% investment in Russell Sigler, Inc. (“RSI”), owned by one of the joint ventures referred to in (ii) above that is accounted for under the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.

The results of operations for the quarter and nine months ended September 30, 2026 are not necessarily indicative of the results to be expected for the year ending December 31, 2026. 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 new construction 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.

Short-Term Cash Investments

Short-term cash investments consist of certificates of deposit.

Equity Method Investments

Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in investment in unconsolidated entity in our condensed consolidated unaudited balance sheets. Under this method of accounting, our proportionate share of the net income or loss of the investee is included in other income in our condensed consolidated unaudited statements of income. The excess, if any, of the carrying amount of our investment over our ownership percentage in the underlying net assets of the investee is attributed to certain fair value adjustments with the remaining portion recognized as goodwill.

Use of Estimates

The preparation of condensed consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amounts of revenues and expenses for the reporting period. Significant estimates include valuation reserves for accounts receivable, net realizable value adjustments to inventories, income taxes, reserves related to loss contingencies and the valuation of goodwill, indefinite-lived intangible assets, and long-lived assets. While we believe that these estimates are reasonable, actual results could differ from such estimates.

Recently Adopted Accounting Standards

Measurement of Credit Losses

In July 2025, the FASB issued amended guidance to provide the option to elect a practical expedient for the application of the expected credit loss model. Under this practical expedient, an entity can assume that the current conditions it has applied in determining credit loss allowances for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. This

9 of 30 amendment is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. Theadoptionof this guidance on January 1, 2026 didnot have a material impact on our condensed consolidated unaudited financial statements.

Recently Issued Accounting Standards Not Yet Adopted

Expense Disaggregation

In November 2024, the FASB issued guidance that requires entities to disclose additional information about certain expenses in the notes to the financial statements. This guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are evaluating the impact of adopting this new guidance on our consolidated financial statements.

Internal Use Software

In September 2025, the FASB issued updated guidance on the accounting for internal use software costs. The updated guidance removes all references to project stages to be neutral to different software development methods and clarifies the threshold entities apply to begin capitalizing costs. This guidance is effective for annual reporting periods beginning after December 15, 2027 and interim reporting periods within those annual reporting periods. We are evaluating the impact of adopting this guidance on our consolidated financial statements.

Interim Reporting

In December 2025, the FASB issued guidance that clarifies the scope and requirements for interim financial statement disclosures. The guidance creates a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose in interim periods any event or change since the previous year end that has had a material effect on the entity. This guidance may be applied prospectively or retrospectively and is effective for interim reporting periods within annual periods beginning after December 15, 2027, with early adoption permitted. We are evaluating the impact of adopting this guidance on our consolidated financial statements.

REVENUES

Disaggregation of Revenues

The following table presents our revenues disaggregated by primary geographical regions and major product lines within our single reporting segment:

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EARNINGS PER SHARE

The following table presents the calculation of basic and diluted earnings per share for our common stock:

Diluted earnings per share for our Common stock assumes the conversion of all our Class B common stock into Common stock as of the beginning of the fiscal year; therefore, no allocation of earnings to Class B common stock is required. At September 30, 2026 and 2025, our outstanding Class B common stock was convertible into 3,401,994 and 3,372,031 shares of our Common stock, respectively.

OTHER COMPREHENSIVE (LOSS) INCOME

Other comprehensive (loss) income consists of the foreign currency translation adjustment associated with our Canadian operations’ use of the Canadian dollar as their functional currency.

The change in accumulated other comprehensive loss, net of tax, was as follows:

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ACQUISITIONS

Jackson Supply Company

On June 1, 2026, we acquired substantially all the assets and assumed certain of the liabilities of Jackson Supply Company (“Jackson”), a distributor of residential HVAC equipment and supplies with annual sales for the year ended December 31, 2025 of approximately$230,000, operating from 25 locations across Sunbelt markets in Texas, Louisiana, Tennessee, Alabama, Mississippi, Oklahoma, and Arizona. We formed a new, wholly owned subsidiary, Jackson Supply, LLC, that operates this business. Consideration for the net purchase price consisted of 517,884 shares of Common stock having a fair value of$186,164, net of cash acquired of$7,663. Of the 517,884 shares of Common stock issued,52,311 shares are currently held in escrow for a period of up to 12 months in connection with indemnification obligations of Jackson. The preliminary purchase price was not material to our condensed consolidated unaudited financial statements and resulted in the initial estimated recognition of$117,486 of goodwill and intangibles. The fair value of the estimated identified intangible assets was$58,800 and consisted of$25,400 in trade names and distribution rights,$32,900 in customer relationships to be amortized over an 18-year period, and$500 in non-competition agreements to be amortized over a 3-year period. The tax basis of the acquired goodwill recognizedis not deductible for income tax purposes.

The table below presents the preliminary allocation of the total consideration to tangible and intangible assets acquired and liabilities assumed from the acquisition of Jackson based on their respective fair values as of June 1, 2026:

Southern Ice Equipment Distributors, Inc.

On May 1, 2025, one of our wholly owned subsidiaries acquired Southern Ice Equipment Distributors, Inc., a distributor of food service and ice machine equipment, parts and supplies, operating from seven locations in Arizona, Arkansas, Louisiana, Mississippi, New Mexico, and Texas. Consideration for the purchase consisted of$14,150 in cash, net of cash acquired of$699, and 7,400 shares of Common stock having a fair value of$3,133 net of a discount for lack of marketability. The purchase price resulted in the recognition of$7,872 of goodwill and intangibles. The fair value of the identified intangible assets was$3,651 and consisted of$2,795 in trade names and distribution rights and$856 in customer relationships to be amortized over an 18-year period. The tax basis of such goodwill is deductible for income tax purposes over 15 years.

Hawkins HVAC Distributors, Inc.

On April 1, 2025, one of our wholly owned subsidiaries acquired Hawkins HVAC Distributors, Inc., a distributor of residential HVAC equipment and supplies, operating fromtwo locations in North Carolina and South Carolina. Consideration for the purchase consisted of$2,452 in cash, net of cash acquired of$368. The purchase price resulted in the recognition of$269 in goodwill. The tax basis of such goodwill is deductible for income tax purposes over 15 years.

W.L. Lashley & Associates, Inc.

On January 3, 2025, Carrier Enterprise I, one of our joint ventures with Carrier, in which we have an 80% controlling interest, acquired W.L. Lashley & Associates, Inc. (“Lashley”), a distributor of commercial HVAC supplies, operating fromone location in Houston, Texas. Consideration for the purchase consisted of$3,662 in cash, net of cash acquired of$837,1,036 shares of Common stock having a fair value of$493, and$838 for repayment of indebtedness. Carrier contributed$999 cash to Carrier Enterprise I in connection with the acquisition of Lashley. The purchase price resulted in the recognition of$3,064 in goodwill. The tax basis of such goodwill is deductible for income tax purposes over 15 years.

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The results of operations of these acquisitions have been included in the condensed consolidated unaudited financial statements from their respective dates of acquisition. The pro forma effect of these acquisitions was not deemed significant to our condensed consolidated unaudited financial statements.

DERIVATIVES

We enter into foreign currency forward and option contracts to offset the earnings impact that foreign exchange rate fluctuations would otherwise have on certain monetary liabilities that are denominated in nonfunctional currencies.

Derivatives Not Designated as Hedging Instruments

We have entered into foreign currency forward contracts that are either not designated as hedges or did not qualify for hedge accounting. These derivative instruments were effective economic hedges for all of the periods presented. The fair value gains and losses on these contracts are recognized in earnings as a component of selling, general and administrative expenses. We had only one foreign currency forward contract not designated as a hedging instrument at September 30, 2026, the total notional value of which was$11,300. Such contract expired in October 2026.

We recognized gains (losses) of$197 and$(517) from foreign currency forward contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the quarters ended September 30, 2026 and 2025, respectively. We recognized losses of$380 and$1,260 from foreign currency forward contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the nine months ended September 30, 2026 and 2025, respectively.

FAIR VALUE MEASUREMENTS

The following tables present our assets and liabilities carried at fair value that are measured on a recurring basis:

The following is a description of the valuation techniques used for these assets and liabilities, as well as the level of input used to measure fair value:

Certificates of deposit– these investments consist of certificates of deposit with varying maturities. We classify these investments within Level 2 of the valuation hierarchy because fair value is based on indirectly observable market inputs.

Equity securities – these investments are exchange-traded equity securities. Fair values for these investments are based on closing stock prices from active markets and are therefore classified within Level 1 of the fair value hierarchy.

Private equity securities – other investments in which fair value inputs are unobservable and are therefore classified within Level 3 of the fair value hierarchy.

Derivative financial instruments – these derivatives are foreign currency forward contracts. See Note 6. Fair value is based on observable market inputs, such as forward rates in active markets; therefore, we classify these derivatives within Level 2 of the valuation hierarchy.

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SHAREHOLDERS’ EQUITY

Dividend Reinvestment Plan

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 of 1933, as amended (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.

At-the-Market Offering Program

In May 2024, we entered into an amended and restated sales agreement with Robert W. Baird & Co. Inc.(the “2024 ATM Program”), which enables the issuance and sale of Common stock for a maximum aggregate offering amount of up to $400,000. At September 30, 2026, $400,000 was available for sale under the 2024 ATM Program. The offer and sale of shares under the 2024 ATM Program have been registered under the Securities Act pursuant to our automatically effective shelf registration statement on Form S-3 (File No. 333-282975).

Common Stock Dividends

We paid cash dividends of$3.30,$3.00,$9.60, and$8.70 per share on common stock during the quarters and nine months ended September 30, 2026 and 2025, respectively.

Restricted Stock

During the quarter and nine months ended September 30, 2026, a total of 3,151 shares of common stock with an aggregate fair market value of$987, and a total of 6,788 shares of common stock with an aggregate fair market value of$2,364, respectively, were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of restricted stock. These shares were retired upon delivery. During the quarter and nine months ended September 30, 2025, a total of 9,086 shares of Class B common stock with an aggregate fair market value of$3,657 were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of restricted stock. These shares were retired upon delivery.

Exercise of Stock Options

Cash received from Common stock issued upon the exercise of stock options during the quarters and nine months ended September 30, 2026 and 2025 was$3,086,$4,903,$16,080, and$17,763, respectively.

During the nine months ended September 30, 2026,589 shares of Common stock with an aggregate fair market value of$242 were withheld as payment in lieu of cash for stock option exercises and related tax withholdings. These shares were retired upon delivery. During the nine months ended September 30, 2025,2,232 shares of Common stock with an aggregate fair market value of$1,067 were withheld as payment in lieu of cash for stock option exercises. These shares were retired upon delivery.

Employee Stock Purchase Plan

During the quarters ended September 30, 2026 and 2025, we received proceeds of$640 and$666, respectively, for shares of our Common stock purchased under our employee stock purchase plan. During the nine months ended September 30, 2026 and 2025, we received proceeds of$1,900 and$1,899, respectively, for shares of our Common stock purchased under our employee stock purchase plan.

COMMITMENTS AND CONTINGENCIES

Litigation, Claims, and Assessments

We are involved in litigation incidental to the operation of our business. We vigorously defend all matters in which we or our subsidiaries are named defendants and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect us. Although the adequacy of existing insurance coverage and the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, we do not believe the ultimate liability associated with any known claims or litigation will have a material adverse effect on our financial condition or results of operations.

Since 2009, we have been a party to an agreement (the “Agreement”) with Gree Electric Appliances, Inc. of Zhuhai, China (“Gree”) that, among other things, provides us with exclusive distribution rights for certain Gree-branded products in the United States. A dispute has arisen between Gree and Watsco as to whether the automatic renewal provisions of the Agreement extended the term of the Agreement for an additional 10 years before the prior term was to end in January 2026.

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In March 2026, Gree filed a complaint for declaratory judgment in Florida’s Circuit Court for Miami-Dade County, seeking a judicial determination that the Agreement did not renew for a successive term and has in fact been terminated. In April 2026, we filed our answer and affirmative defenses to Gree’s complaint, and we interposed counterclaims against Gree to enforce our rights under the Agreement, including seeking a judicial determination that the Agreement renewed for an additional 10-year period and remains in full force and effect, and an award for any damages resulting from Gree’s improper purported termination or non-renewal of the Agreement and Gree’s other related acts. We intend to vigorously prosecute our counterclaims and affirm our position that the Agreement automatically renewed for an additional 10-year period, and to vigorously defend against Gree’s assertion that the Agreement was not renewed.

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.

Self-Insurance

Self-insurance reserves are maintained relative to company-wide casualty insurance and health benefit programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When estimating the self-insurance liabilities and related reserves, management considers several factors, which include historical claims experience, demographic factors, severity factors, and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party actuaries to evaluate whether the self-insurance reserves are adequate. If actual claims or adverse development of loss reserves occur and exceed these estimates, additional reserves may be required. Reserves in the amounts of$5,766 and$4,871 at September 30, 2026 and December 31, 2025, respectively, were established related to such programs and are included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets.

RELATED PARTY TRANSACTIONS

Purchases from Carrier and its affiliates comprised 62% and 61% of all inventory purchases made during the quarters ended September 30, 2026 and 2025, respectively. Purchases from Carrier and its affiliates comprised 63% and 61% of all inventory purchases made during the nine months ended September 30, 2026 and 2025, respectively. At September 30, 2026 and December 31, 2025, approximately$236,000 and$115,000, respectively, was payable to Carrier and its affiliates, net of receivables. We also sell HVAC products to Carrier and its affiliates. Revenues in our condensed consolidated unaudited statements of income for the quarters and nine months ended September 30, 2026 and 2025 included approximately$20,000,$42,000,$54,000, and$67,000, respectively, of sales to Carrier and its affiliates. We believe these transactions are conducted on terms equivalent to an arm’s-length basis in the ordinary course of business.

A member of our Board of Directors is a Senior Chairman of Greenberg Traurig, P.A., which serves as our principal outside counsel for compliance and acquisition-related legal services. During the quarters and nine months ended September 30, 2026 and 2025, fees for services performed were$115,$12,$189, and$121, respectively, and$65 and$19 was payable at September 30, 2026 and December 31, 2025, respectively.

SEGMENT REPORTING

We haveone operating and reporting segment: HVAC/R distribution. This sole line of business focuses exclusively on the distribution of air conditioning, heating, and refrigeration equipment and related parts and supplies. Our single reportable segment entity is managed on a consolidated basis, with the CEO serving as the chief operating decision maker (“CODM”). On a monthly basis, the CODM reviews financial information presented on a consolidated basis, as reported in the consolidated statements of income, and uses consolidated operating income and net income to assess performance and allocate resources. The CODM does not receive information that is disaggregated or presented outside of the consolidated statement of income.

Significant expenses within operating income and net income include cost of sales and selling, general and administrative expenses, which are each separately presented in the consolidated statements of income. Other segment items within net income include interest and income taxes.

Our operations are primarily within the United States, including Puerto Rico, Canada, and Mexico. Products are also sold from the United States on an export-only basis to portions of Latin America and the Caribbean Basin. See Note 2 for revenues disaggregated by geographical regions and major product line.

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SUBSEQUENT EVENTS

On October 9, 2026, we completed the acquisition of Granite Group Holdings LLC and certain of its affiliated entities (collectively, “Granite”), a diversified distributor of plumbing and HVAC products with annual sales for the year ended December 31, 2025 of approximately$500,000, operating from 82 locations throughout seven states in the Northeast. Consideration for the purchase price consisted of$342,600 in cash, net of cash acquired,338,176 shares of Common stock having a fair value of$94,655, and$81,997 for repayment of indebtedness.

On October 15, 2026,799,431 shares of Class B restricted stock granted to our Chief Executive Officer (“CEO”) during the period from 2011 to 2018 under various performance-based incentive plans vested. The vested shares had a value of $229,836 based on the closing price of our Class B common stock as of the vesting date. This vested value constitutes taxable compensation to our CEO for income tax purposes and was subject to statutory withholding. Upon vesting, we funded $90,441 in statutory withholding, which, in turn, was satisfied by the CEO by surrendering 314,576 shares of Class B common stock. Accordingly,484,855 shares of Class B common stock were retained by the CEO, and weretired the surrendered shares. The value of the vested shares will be deducted on our 2026 income tax return and our provision for income taxes will reflect an income tax benefit and related reduction in our effective tax rate.

On October 21, 2026, we entered into an unsecured, five-year $750,000 syndicated multicurrency revolving credit agreement, which replaced in its entirety our prior five-year $600,000 unsecured revolving credit agreement that was set to mature on March 16, 2028. Proceeds from the new facility were used to repay the $69,700 outstanding under the prior facility. Additional proceeds may be used for, among other things, funding seasonal working capital needs and 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 September 1 to March 1 of each calendar year, during which the borrowing capacity may be reduced to $650,000, $550,000, or $450,000 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 $150,000 alternative currency borrowing sublimit, a $125,000 swing line loan sublimit, and a $10,000 letter of credit sublimit. The credit agreement matures on October 21, 2031.

The following table presents the interest rates associated with borrowings under the revolving credit facility:

(1)The applicable spread is dependent on our ratio of total debt to earnings before interest, taxes, depreciation, and amortization.

(2)Secured Overnight Financing Rate (“SOFR”).

We pay a variable commitment fee on the unused portion of the commitment under the revolving credit agreement, ranging from 0.10% to 0.175% (0.10% at October 21, 2026).

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