WATSCO INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Quarterly Report on Form 10-Q contains or incorporates by reference statements that are not historical in nature and that are intended to be, and are hereby identified as, “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Statements which are not historical in nature, including the words “anticipate,” “estimate,” “could,” “should,” “may,” “plan,” “seek,” “expect,” “believe,” “intend,” “target,” “will,” “project,” “focused,” “outlook,” “goal,” “designed,” and variations of these words and negatives thereof and similar expressions are intended to identify forward-looking statements, including statements regarding, among others, (i) economic conditions, (ii) business and acquisition strategies, (iii) potential acquisitions and/or joint ventures and investments in unconsolidated entities, (iv) financing plans, and (v) industry, demographic and other trends affecting our financial condition or results of operations. These forward-looking statements are based on management’s current expectations, are not guarantees of future performance and are subject to a number of risks, uncertainties, and changes in circumstances, certain of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of several factors, including, but not limited to: • general economic conditions, both in the United States and in the international markets we serve; • competitive factors within the HVAC/R industry; • effects of supplier concentration; • fluctuations in certain commodity costs; • consumer spending; • consumer debt levels; • the continued impact of the COVID-19 pandemic; • new housing starts and completions; • capital spending in the commercial construction market; • access to liquidity needed for operations; • seasonal nature of product sales; • weather patterns and conditions; • insurance coverage risks; • federal, state, and local regulations impacting our industry and products; • prevailing interest rates; • foreign currency exchange rate fluctuations; • international risk; • cybersecurity risk; and • the continued viability of our business strategy. We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. For additional information regarding important factors that may affect our operations and could cause actual results to vary materially from those anticipated in the forward-looking statements, please see the discussion below under Impact of the COVID-19 Pandemic, Item 1A “Risk Factors” contained in Part II of this Quarterly Report on this Form 10-Q and Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, as well as the other documents and reports that we file with the SEC. Forward-looking statements speak only as of the date the statements were made. We assume no obligation to update forward-looking information or the discussion of such risks and uncertainties to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except as required by applicable law. We qualify any and all of our forward-looking statements by these cautionary factors. The following information should be read in conjunction with the condensed consolidated unaudited financial statements, including the notes thereto, included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited consolidated financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2019. Company Overview Watsco, Inc. was incorporated in Florida in 1956, and, together with its subsidiaries (collectively, “Watsco,” or “we,” “us,” or “our”) is the largest distributor of air conditioning, heating, and refrigeration equipment, and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America. At June 30, 2020, we operated from 603 locations in 38 U.S. States, Canada, Mexico, and Puerto Rico with additional market coverage on an export basis to portions of Latin America and the Caribbean. 17 of 27 Table of Contents 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 fourth quarter. 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 A novel strain of coronavirus, COVID-19, surfaced in December 2019 and has spread around the world, including to the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic significantly impacted business during the second quarter of 2020. Certain U.S. states were under executive orders requiring that all workers remain at home unless their work was critical, essential, or life-sustaining. We believe that, based on the various standards published to date, the work our employees are performing is essential, and as such we continued to operate with certain modifications. A few of our locations experienced short-term closures for COVID-19 employee health concerns or operated at a diminished capacity, which negatively impacted sales during the quarter and may continue to negatively impact sales until the COVID-19 pandemic moderates. As of the date of this filing, while all of our locations currently continue to operate, we have restricted public access to our branches and have instituted contactless sales and servicing capabilities designed to safeguard our employees and customers. At the end of the second quarter of 2020, many of the markets in which we operate had begun to ease COVID-19 restrictions that had been in place earlier in the period. However, as of the date of this filing, viral infections have begun to increase, resulting in the resumption of restrictions in certain markets in which we operate. As a result, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. In response to the pandemic, we have implemented plans intended to preserve adequate liquidity and ensure that our business can continue to operate during this uncertain time. In addition, we have taken actions to reduce costs, including reductions in fixed-cost compensation, rent abatement, changes to vendor terms and various austerity measures to curtail discretionary spending in light of the circumstances. Other variable costs, including hourly wages, overtime, sales commissions, temporary labor, performance-based compensation, advertising, and delivery expenses are expected to moderate consistent with our overall business activity. If and to the extent restrictions ease and normal economic conditions and operations resume, the various austerity measures to curtail discretionary spending may cease. With respect to liquidity, we believe that our balance sheet remains strong with $79.6 million in cash, $33.4 million in borrowings drawn from our $560.0 million credit facility and $1.7 billion of shareholders’ equity as of June 30, 2020. Our quarterly dividend plans remain currently unchanged, most recently at $1.775 per share. 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. During these uncertain times, we believe that our scale, our current low debt-level, conservative leverage ratio, and our historical ability to generate cash flow positions us well as we work through the impacts of the COVID-19 pandemic. The full impact of the COVID-19 pandemic on our financial condition and results of operations will depend on future developments, such as the ultimate duration and scope of the pandemic, its impact on our employees, customers, and suppliers, how quickly normal economic conditions and operations resume and whether the pandemic exacerbates other risks disclosed in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. Joint Ventures with Carrier Global Corporation On April 3, 2020, United Technologies Corporation completed the spin-off of Carrier Corporation into an independent, publicly traded company, named Carrier Global Corporation (“Carrier”). In 2009, we formed a joint venture with Carrier, which we refer to as Carrier Enterprise I, in which Carrier contributed 95 of its company-owned locations in 13 Sun Belt states and Puerto Rico, and its export division in Miami, Florida, and we contributed 15 locations that distributed Carrier products. We have an 80% controlling interest in Carrier Enterprise I, and Carrier has a 20% non-controlling interest. On August 1, 2019, Carrier Enterprise I acquired substantially all of the HVAC assets and assumed certain of the liabilities of Peirce-Phelps, Inc. (“PPI”), an HVAC distributor operating from 19 locations in Pennsylvania, New Jersey, and Delaware. 18 of 27 Table of Contents In 2011, we formed a second joint venture with Carrier, in which Carrier contributed 28 of its company-owned locations in the Northeast U.S., and we contributed 14 locations in the Northeast U.S., and we then purchased Carrier’s distribution operations in Mexico, which included seven locations. Collectively, the Northeast locations and the Mexico operations are referred to as Carrier Enterprise II. We have an 80% controlling interest in Carrier Enterprise II, and Carrier has a 20% non-controlling interest. Effective May 31, 2019, we purchased an additional 20% ownership interest in Homans Associates II LLC (“Homans”) from Carrier Enterprise II, following which we owned 100% of Homans. Homans previously operated as a division of Carrier Enterprise II and now operates as one of our stand-alone, wholly owned subsidiaries. In 2012, we formed a third joint venture, which we refer to as Carrier Enterprise III, with Carrier. Carrier contributed 35 of its company-owned locations in Canada to Carrier Enterprise III. We have a 60% controlling interest in Carrier Enterprise III, and Carrier has a 40% non-controlling interest. Critical Accounting Policies Management’s discussion and analysis of financial condition and results of operations is based upon the condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed consolidated unaudited financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. At least quarterly, management reevaluates its judgments and estimates, which are based on historical experience, current trends, and various other assumptions that are believed to be reasonable under the circumstances. Our critical accounting policies are included in our 2019 Annual Report on Form 10-K, as filed with the SEC on February 28, 2020. We believe that there have been no significant changes during the quarter ended June 30, 2020 to the critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. New Accounting Standards Refer to Note 1 to our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q for a discussion of recently adopted accounting standards. Results of Operations The following table summarizes information derived from our condensed consolidated unaudited statements of income, expressed as a percentage of revenues, for the quarters and six months ended June 30, 2020 and 2019: Quarter Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 76.4 76.1 76.0 75.6 Gross profit 23.6 23.9 24.0 24.4 Selling, general and administrative expenses 14.3 14.3 16.8 16.4 Other income 0.3 0.2 0.2 0.2 Operating income 9.5 9.8 7.4 8.2 Interest expense, net 0.0 0.1 0.0 0.1 Income before income taxes 9.5 9.7 7.3 8.1 Income taxes 1.8 1.8 1.4 1.6 Net income 7.7 7.9 5.9 6.6 Less: net income attributable to non-controlling interest 1.3 1.3 1.0 1.2 Net income attributable to Watsco, Inc. 6.4 % 6.6 % 5.0 % 5.4 % Note: Due to rounding, percentages may not add up to 100. The following narratives reflect our acquisition of the HVAC distribution businesses of N&S Supply of Fishkill, Inc. (“N&S”) in November 2019, PPI in August 2019, Dunphey & Associates Supply Co., Inc. (“DASCO”) in April 2019, as well as the purchase of an additional 1.8% ownership interest in Russell Sigler, Inc. (“RSI”) in April 2019, and the purchase of an additional 20% ownership interest in Homans effective May 31, 2019. We did not acquire any businesses during the quarter or six months ended June 30, 2020. In the following narratives, computations and other information referring to “same-store basis” exclude the effects of locations closed, acquired, or locations opened, in each case during the immediately preceding 12 months, unless such locations are within close geographical proximity to existing locations. At June 30, 2020 and 2019, three and eight locations, respectively, that we opened were near existing locations and were therefore included in “same-store basis” information. 19 of 27 Table of Contents The table below summarizes the changes in our locations for the 12 months ended June 30, 2020: Number of Locations June 30, 2019 585 Opened 3 Acquired 26 Closed (8 ) December 31, 2019 606 Opened 2 Closed (5 ) June 30, 2020 603 Second Quarter of 2020 Compared to Second Quarter of 2019 Revenues Revenues for the second quarter of 2020 decreased $16.5 million, or 1%, including $66.5 million attributable to the new locations acquired and $0.8 million from other locations opened during the preceding 12 months, offset by $4.8 million from locations closed. Sales of HVAC equipment (71% of sales) increased 1%, sales of other HVAC products (26% of sales) decreased 6% and sales of commercial refrigeration products (3% of sales) decreased 15%. On a same-store basis, revenues decreased $79.0 million, or 6%, as compared to the same period in 2019, reflecting a 4% decrease in sales of HVAC equipment (70% of sales), which included flat sales of residential HVAC equipment and a 20% decrease in sales of commercial HVAC equipment, a 9% decrease in sales of other HVAC products (27% of sales) and a 15% decrease in sales of commercial refrigeration products (3% of sales). The decrease in HVAC equipment revenues was primarily attributable to lower sales of commercial HVAC equipment due to the pandemic-related market disruption, while both the average selling price and volume of residential HVAC equipment remained flat. Gross Profit Gross profit for the second quarter of 2020 decreased $8.8 million, or 3%, primarily as a result of decreased revenues. Gross profit margin for the quarter ended June 30, 2020 declined 30 basis-points to 23.6% versus 23.9% for the same period in 2019, primarily due to a shift in sales mix toward HVAC equipment, which generates a lower gross profit margin than non-equipment products. Selling, General and Administrative Expenses Selling, general and administrative expenses for the second quarter of 2020 decreased $2.5 million, or 1%, primarily due to decreased revenues. Selling, general and administrative expenses as a percent of revenues for the second quarter of 2020 remained flat at 14.3% versus the same period in 2019. On a same-store basis, selling, general and administrative expenses decreased 7% as compared to the same period in 2019, primarily due to actions taken to reduce costs and curtail discretionary spending in response to the pandemic as well as decreased variable costs commensurate with decreased revenues. Selling, general and administrative expenses included $0.5 million of additional costs for 2020 in excess of 2019 for ongoing technology initiatives, including initiatives designed to ameliorate the impact of, or otherwise address, the pandemic. Other Income Other income of $4.1 million and $3.0 million for the second quarters of 2020 and 2019, respectively, represented our share of the net income of RSI. Interest Expense, Net Interest expense, net for the second quarter of 2020 decreased $0.9 million, or 77%, primarily as a result of a decrease in average outstanding borrowings and a lower effective interest rate for the 2020 period, in each case under our revolving credit facility, as compared to the same period in 2019. Income Taxes Income taxes decreased to $24.7 million for the second quarter of 2020, as compared to $25.3 million for the second quarter of 2019 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 22.1% and 21.7% for the quarters ended June 30, 2020 and 2019, respectively. The increase was primarily due to lower estimated foreign withholding taxes in the second quarter of 2019 as compared to the same period in 2020. 20 of 27 Table of Contents Net Income Attributable to Watsco, Inc. Net income attributable to Watsco for the quarter ended June 30, 2020 decreased $3.6 million, or 4%, compared to the same period in 2019. The decrease was primarily driven by lower revenues and gross profit, partially offset by lower selling, general and administrative expenses, higher other income, and a reduction in interest expense, net. First Half of 2020 Compared to First Half of 2019 Revenues Revenues for the first half of 2020 increased $60.4 million, or 3%, including $127.5 million attributable to the new locations acquired and $2.3 million from other locations opened during the preceding 12 months, offset by $7.7 million from locations closed. Sales of HVAC equipment (69% of sales) increased 3%, sales of other HVAC products (28% of sales) were flat and sales of commercial refrigeration products (3% of sales) decreased 8%. On a same-store basis, revenues decreased $61.7 million, or 3%, as compared to the same period in 2019, reflecting a 2% decrease in sales of HVAC equipment (69% of sales), which included a 1% increase in sales of residential HVAC equipment (2% increase in U.S. markets and an 11% decrease in international markets) and a 14% decrease in sales of commercial HVAC equipment, a 4% decrease in sales of other HVAC products (28% of sales) and an 8% decrease in commercial refrigeration products (3% of sales). The decrease in HVAC equipment revenues was primarily attributable to lower sales of commercial HVAC equipment due to pandemic-related market disruption, partially offset by a 2% increase in volume of residential HVAC equipment. Gross Profit Gross profit for the first half of 2020 increased $5.1 million, or 1%, primarily as a result of increased revenues. Gross profit margin for the six months ended June 30, 2020 declined 40 basis-points to 24.0% versus 24.4% for the same period in 2019, primarily due to a shift in sales mix toward HVAC equipment, which generates a lower gross profit margin than non-equipment products and a lower benefit of pricing actions taken by our HVAC equipment suppliers. Selling, General and Administrative Expenses Selling, general and administrative expenses for the first half of 2020 increased $20.8 million, or 6%, primarily due to newly acquired locations. Selling, general and administrative expenses as a percentage of revenues for the six months ended June 30, 2020 increased to 16.8% versus 16.4% for the same period in 2019. On a same-store basis, selling, general and administrative expenses decreased 2% as compared to the same period in 2019 primarily due to actions taken to reduce costs and curtail discretionary spending in response to the pandemic as well as decreased variable costs commensurate with decreased revenues. Selling, general and administrative expenses included $1.6 million of additional costs for 2020 in excess of 2019 for ongoing technology initiatives. Other Income Other income of $5.1 million and $4.4 million for the first half of 2020 and 2019, respectively, represented our share of the net income of RSI. Interest Expense, Net Interest expense, net for the first half of 2020 decreased $0.9 million, or 46%, primarily as a result of a decrease in average outstanding borrowings and a lower effective interest rate for the 2020 period, in each case under our revolving credit facility, as compared to the same period in 2019. Income Taxes Income taxes decreased to $32.9 million for the first half of 2020, as compared to $35.8 million for the first half of 2019 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 21.8% and 22.0% for the first half of 2020 and 2019, respectively. The decrease was primarily due to higher share-based payment tax benefits in 2020 as compared to the same period in 2019. Net Income Attributable to Watsco, Inc. Net income attributable to Watsco for the first half of 2020 decreased $8.1 million, or 6%, compared to the same period in 2019. The decrease was primarily driven by higher selling, general and administrative expenses, partially offset by lower interest expense, net, a reduction in income taxes, and a decrease in the net income attributable to the non-controlling interest. 21 of 27 Table of Contents Liquidity and Capital Resources We assess our liquidity in terms of our ability to generate cash to execute our business strategy and fund operating and investing activities, taking into consideration the seasonal demand for HVAC/R products, which peaks in the months of May through August. Significant factors that could affect our liquidity include the following: • cash needed to fund our business (primarily working capital requirements); • borrowing capacity under our revolving credit facility; • the ability to attract long-term capital with satisfactory terms; • acquisitions, including joint ventures and investments in unconsolidated entities; • dividend payments; • capital expenditures; and • the timing and extent of common stock repurchases. Sources and Uses of Cash We rely on cash flows from operations and borrowing capacity under our revolving credit agreement to fund seasonal working capital needs and for other general corporate purposes, including dividend payments (if and as declared by our Board of Directors), capital expenditures, business acquisitions, and development of our long-term operating and technology strategies. Additionally, we may also generate cash through the issuance and sale of our Common stock. As of June 30, 2020, we had $79.6 million of cash and cash equivalents, of which $60.0 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, and funds available for borrowing under our revolving credit agreement are sufficient to meet our liquidity needs in the foreseeable future. However, there can be no assurance that our current sources of available funds will be sufficient to meet our cash requirements. Our access to funds under our 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. LIBOR is the subject of recent proposals for reform that currently provide for the phase-out of LIBOR by 2021. The consequences of these developments with respect to LIBOR cannot be entirely predicted but could result in an increase in the cost of our debt, as it is currently anticipated that lenders will replace LIBOR with the Secured Overnight Financing Rate (“SOFR”), which may exceed what would have been the comparable LIBOR rate. We believe that the transition from LIBOR will not materially impact our financial position or results of operations. 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 decreased to $992.6 million at June 30, 2020 from $1,085.0 million at December 31, 2019, reflecting lower levels of inventory due to pandemic-related market disruption resulting in lower purchases in 2020 versus 2019, higher levels of accounts payable and accrued expenses offset by higher levels of accounts receivable due to the seasonality of our business. Cash Flows The following table summarizes our cash flow activity for the six months ended June 30, 2020 and 2019 (in millions): 2020 2019 Change Cash flows provided by operating activities $ 261.3 $ 68.4 $ 192.9 Cash flows used in investing activities $ (8.0 ) $ (30.8 ) $ 22.8 Cash flows used in financing activities $ (247.3 ) $ (65.3 ) $ (182.0 ) 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 a reduction in the level of inventories. 22 of 27 Table of Contents Investing Activities Net cash used in investing activities was lower due to cash consideration paid for acquisitions and the purchase of an additional ownership interest in RSI in 2019. Financing Activities The increase in net cash used in financing activities was primarily attributable to net repayments under our revolving credit agreement and an increase in dividends paid in 2020. Revolving Credit Agreement We maintain an unsecured, 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. On April 10, 2020, we increased the aggregate borrowing capacity of our revolving credit agreement from $500.0 million to $560.0 million. The credit agreement matures on December 5, 2023. At June 30, 2020 and December 31, 2019, $33.4 million and $155.7 million, respectively, were outstanding under the revolving credit agreement. The revolving credit agreement contains customary affirmative and negative covenants, including financial covenants with respect to consolidated leverage and interest coverage ratios, and other customary restrictions. We believe we were in compliance with all covenants at June 30, 2020. Purchase of Additional Ownership Interest from Joint Venture Effective May 31, 2019, we purchased an additional 20% ownership interest in Homans from Carrier Enterprise II for cash consideration of $32.4 million, which increased our ownership in Homans to 100%. Homans previously operated as a division of Carrier Enterprise II and subsequent to the purchase operates as a stand-alone subsidiary of the Company with 16 locations in the Northeastern U.S. Investment in Unconsolidated Entity On June 21, 2017, Carrier Enterprise I acquired a 34.9% ownership interest in RSI, an HVAC distributor operating from 30 locations in the Western U.S. for cash consideration of $63.6 million, of which we contributed $50.9 million, and Carrier contributed $12.7 million. Effective June 29, 2018, Carrier Enterprise I acquired an additional 1.4% ownership interest in RSI, which increased Carrier Enterprise I’s ownership interest in RSI to 36.3% for cash consideration of $3.8 million, of which we contributed $3.0 million and Carrier contributed $0.8 million. Effective April 22, 2019, Carrier Enterprise I acquired an additional 1.8% ownership interest in RSI, which increased Carrier Enterprise I’s ownership interest in RSI to 38.1% for cash consideration of $4.9 million, of which we contributed $3.9 million and Carrier contributed $1.0 million. Carrier Enterprise I is a party to a shareholders’ agreement (the “Shareholders’ Agreement”) with RSI and its shareholders. Pursuant to the Shareholders’ Agreement, RSI’s shareholders have the right to sell, and Carrier Enterprise I has the obligation to purchase, their respective shares of RSI for a purchase price determined based on either book value or a multiple of EBIT, the latter of which Carrier Enterprise I used to calculate the price paid for its investment in RSI. RSI’s shareholders may transfer their respective shares of RSI common stock only to members of the Sigler family or to Carrier Enterprise I, and, at any time from and after the date on which Carrier Enterprise I owns 85% or more of RSI’s outstanding common stock, it has the right, but not the obligation, to purchase from RSI’s shareholders the remaining outstanding shares of RSI common stock. At June 30, 2020, the estimated purchase amount we would be contingently liable for was approximately $170.0 million. We believe that our operating cash flows, cash on hand, and funds available for borrowing under our revolving credit agreement will be sufficient to purchase any additional ownership interests in RSI. Acquisitions On November 26, 2019, one of our wholly owned subsidiaries acquired certain assets and assumed certain liabilities of N&S, a distributor of air conditioning, heating and plumbing products operating from seven locations in New York and Connecticut. The purchase price was composed of cash consideration of $12.0 million, the issuance of 22,435 shares of Common stock having a fair value of $4.0 million and the payment of certain indebtedness. On August 1, 2019, Carrier Enterprise I acquired substantially all the HVAC assets and assumed certain of the liabilities of PPI, an HVAC distributor operating from 19 locations in Pennsylvania, New Jersey, and Delaware, for $85.0 million less certain average revolving indebtedness. Consideration for the net purchase price consisted of $10.0 million in cash, 372,543 shares of Common stock having a fair value of $58.3 million, net of a discount for lack of marketability, and the payment of certain average revolving indebtedness. Carrier contributed cash of $17.0 million to Carrier Enterprise I in connection with the acquisition of PPI. On April 2, 2019, one of our wholly owned subsidiaries acquired certain assets and assumed certain liabilities of DASCO, a distributor of air conditioning and heating products operating from seven locations in New Jersey, New York and Connecticut. The purchase price was composed of cash consideration of $16.8 million and the issuance of 50,952 shares of Common stock having a fair value of $6.9 million, net of a discount for lack of marketability. 23 of 27 Table of Contents 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 $3.375 and $3.20 per share of Common stock and Class B common stock during the six months ended June 30, 2020 and 2019, respectively. On July 1, 2020, our Board of Directors declared a regular quarterly cash dividend of $1.775 per share of both Common and Class B common stock that was paid on July 31, 2020 to shareholders of record as of July 16, 2020. 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 In September 1999, our Board of Directors authorized the repurchase, at management’s discretion, of up to 7,500,000 shares of common stock in the open market or via private transactions. Shares repurchased under the program are accounted for using the cost method and result in a reduction of shareholders’ equity. We last repurchased shares under this plan in 2008. In aggregate, 6,370,913 shares of Common and Class B common stock have been repurchased at a cost of $114.4 million since the inception of the program. At June 30, 2020, there were 1,129,087 shares remaining authorized for repurchase under the program. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the information regarding market risk provided in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K for the year ended December 31, 2019.