What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 88 added, 78 removed, 186 unchanged (47% of the section changed)

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consumer debt levels;

the continued impact of the

the continued impact of the COVID-19

new housing starts and completions;

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prevailing interest rates;

the effect of inflation;

foreign currency exchange rate fluctuations;

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was incorporated in Florida in 1956, and, together with its subsidiaries (collectively, “Watsco,” or “we,” “us,” or “our”) is the largest distributor of air conditioning, heating, and refrigeration equipment, and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America.

At June 30, 2022, we operated from 673 locations in 42 U.S.

At September 30, 2022, we operated from 675 locations in 42 U.S.

States, Canada, Mexico, and Puerto Rico with additional market coverage on an export basis to portions of Latin America and the Caribbean.

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Impact of the COVID-19

pandemic has had widespread, rapidly-evolving and unpredictable impacts on financial markets and business practices.

As conditions have continued to improve, governments and organizations have responded by adjusting their restrictions and guidelines accordingly.

Although we have learned to navigate COVID-19

while maintaining our operations in all material respects, our focus remains on promoting employee health and safety, serving our customers and ensuring business continuity.

As economic activity has been recovering and the effects of the pandemic have continued to lessen, the impact of the pandemic on our business has been more reflective of greater economic and marketplace dynamics rather than pandemic-related issues, such as location closures, mandated restrictions and employee illness.

Pandemic and Economic and Marketplace Dynamics

Since COVID-19

was declared a pandemic in March 2020, it has had widespread impacts on global financial markets and business practices.

Although we learned to navigate COVID-19

while maintaining our operations in all material respects, the pandemic impacted our operations, and the operations of our customers and suppliers throughout 2020 and into 2021.

However, as the effects of the pandemic have continued to lessen, the impact of the pandemic on our business has been more reflective of greater economic and marketplace dynamics, which include inflation, supply chain disruptions, and labor shortages, rather than pandemic-related issues, such as quarantines, location closures, mandated restrictions, employee illnesses, and travel restrictions.

Certain of our manufacturers and suppliers continue to experience some level of supply chain disruptions caused by component availability, labor shortages, transportation delays, and other logistical challenges, resulting in longer lead times and constrained availability of HVAC/R products.

These supply chain disruptions impacted our ability to fulfill contractor demand at various points during the first half of 2022.

Despite these disruptions, we experienced growth in sales of residential units during the first half of 2022.

We intend to continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.

These supply chain disruptions impacted our ability to fulfill contractor demand at various points

during the first nine months of 2022 and we estimate the impact was approximately 3% to 4% of lost revenues.

We cannot reasonably estimate the future impact of supply chain disruptions to the extent that these disruptions become more pronounced than current conditions.

Despite these disruptions, we experienced growth in sales of residential units during the first nine months of 2022.

We intend to continue to actively monitor the situation and may take further actions that alter our business.

Climate Change and Reductions in CO 2

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We offer a broad variety of systems that operate above the minimum SEER standards, ranging from base-level efficiency to systems that exceed 20 SEER.

Our sales of higher-efficiency residential HVAC systems (those above base-level efficiency) grew 22% organically during the first half of 2022, outpacing the overall growth rate of 20% for residential HVAC equipment in the United States.

Our sales of higher-efficiency residential HVAC systems (those above base-level efficiency) grew 23% organically during the nine months ended September 30, 2022, outpacing the overall growth rate of 17% for residential HVAC equipment in the United States.

Based on estimates validated by independent sources, we averted an estimated 14.2 million metric tons of CO 2

e emissions during the period January 1, 2020 to June 30, 2022 through the sale of replacement residential HVAC systems at higher-efficiency standards.

e emissions during the period January 1, 2020 to September 30, 2022 through the sale of replacement residential HVAC systems at higher-efficiency standards.

Joint Ventures with Carrier Global Corporation

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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.

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.

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as filed with the SEC on February 25, 2022.

We believe that there have been no significant changes during the quarter ended June 30, 2022 to the critical accounting estimates disclosed in our Annual Report on Form 10-K

We believe that there have been no significant changes during the quarter ended September 30, 2022 to the critical accounting estimates disclosed in our Annual Report on Form 10-K

for the year ended December 31, 2021.

Results of Operations

The following table summarizes information derived from our condensed consolidated unaudited statements of income, expressed as a percentage of revenues, for the quarters and six months ended June 30, 2022 and 2021:

Ended June 30,

Quarter Ended

September 30,

Nine Months Ended

September 30,

Cost of sales

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(“MIS”) in August 2021, Acme Refrigeration of Baton Rouge LLC (“ACME”) in May 2021, and Temperature Equipment Corporation in April 2021.

We did not acquire any businesses during the quarter or six months ended June 30, 2022.

We did not acquire any businesses during the quarter or nine months ended September 30, 2022.

In the following narratives, computations and other information referring to “same-store basis” exclude the effects of locations closed, acquired, or locations opened, in each case during the immediately preceding 12 months, unless such locations are within close geographical proximity to existing locations.

At June 30, 2022 and 2021, nine and one locations, respectively, that we opened during the immediately preceding 12 months were near existing locations and were therefore included in “same-store basis” information.

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

June 30, 2021

At September 30, 2022 and 2021, eleven and zero locations, respectively, that we opened during the immediately preceding 12 months were near existing locations and were therefore included in “same-store basis” information.

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

September 30, 2021

December 31, 2021

June 30, 2022

Second Quarter of 2022 Compared to Second Quarter of 2021

Revenues for the second quarter of 2022 increased $284.1 million, or 15%, as compared to the second quarter of 2021, including $11.2 million attributable to the new locations acquired and $14.3 million from other locations opened during the preceding 12 months, offset by $5.2 million from locations closed.

Sales of HVAC equipment (70% of sales) increased 19%, sales of other HVAC products (26% of sales) increased 23% and sales of commercial refrigeration products (4% of sales) increased 26%.

On a same-store basis, revenues increased $263.8 million, or 14%, as compared to the same period in 2021, reflecting a 13% increase in sales of HVAC equipment (70% of sales), which included a 14% increase in sales of residential HVAC equipment (15% increase in U.S.

markets) and a 5% increase in sales of commercial HVAC equipment, a 15% increase in sales of other HVAC products (26% of sales) and a 26% increase in sales of commercial refrigeration products (4% of sales).

September 30, 2022

Third Quarter of 2022 Compared to Third Quarter of 2021

Revenues for the third quarter of 2022 increased $253.2 million, or 14%, including $2.1 million attributable to new locations acquired and $6.6 million from other locations opened during the preceding 12 months, offset by $4.0 million from locations closed.

Sales of HVAC equipment (69% of sales) increased 13%, which included 14% growth in U.S.

markets (13% increase in sales of residential HVAC equipment and a 20% increase in sales of commercial HVAC equipment), sales of other HVAC products (27% of sales) increased 15% and sales of commercial refrigeration products (4% of sales) increased 18%.

For HVAC equipment, the increase in revenues was primarily due to the realization of price increases and a higher mix of high-efficiency air conditioning and heating systems, which sell at higher unit prices, resulting in a 14% increase in the average selling price and a 1% decrease in volume, as well as higher sales of commercial HVAC equipment.

Gross profit for the second quarter of 2022 increased $117.6 million, or 25%, as compared to the second quarter of 2021, primarily as a result of increased revenues.

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

On a same-store basis, revenues increased $248.5 million, or 14%, as compared to the same period in 2021.

Hurricane Ian interrupted sales and operations in several of our markets in Florida, our largest U.S.

market, during the last week of September 2022.

The materiality of the disruptions was not significant to the third quarter results of operations.

All Florida locations impacted by the storm are open and operational as of the date of this filing.

Gross profit for the third quarter of 2022 increased $68.2 million, or 14%, primarily as a result of increased revenues.

Gross profit margin for the quarter ended September 30, 2022 remained consistent with the same period in 2021 at 27.1%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the second quarter of 2022 increased $48.1 million, or 18%, as compared to the second quarter of 2021, primarily due to increased revenues.

Selling, general and administrative expenses as a percent of revenues for the second quarter of 2022 increased to 14.8% versus 14.4% for the same period in 2021.

On a same-store basis, selling, general and administrative expenses increased 17% as compared to the same period in 2021, primarily due to increased higher variable selling costs driven by the increase in revenues, investments in headcount, and new locations opened in 2022.

Other income of $6.3 million and $5.5 million for the second quarters of 2022 and 2021, respectively, represented our share of the net income of Russell Sigler, Inc.

Selling, general and administrative expenses for the third quarter of 2022 increased $39.6 million, or 14%, primarily due to increased revenues.

On a same-store basis, selling, general and administrative expenses increased 14% as compared to the same period in 2021.

Selling, general and administrative expenses as a percent of revenues for the third quarter of 2022 remained consistent with the same period in 2021 at 15.8%.

Other income of $6.9 million and $6.1 million for the third quarters of 2022 and 2021, respectively, represented our share of the net income of Russell Sigler, Inc.

(“RSI”), in which we have a 38.1% equity interest.

Interest Expense, Net

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

Income taxes increased to $60.5 million for the second quarter of 2022, as compared to $44.2 million for the second quarter of 2021, and represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to the Carrier joint ventures, which are primarily taxed as partnerships for income tax purposes;

Interest expense, net for the third quarter of 2022 increased $0.3 million, or 119%, primarily as a result of an increase in average outstanding borrowings and a higher effective interest rate, in each case under our revolving credit facility, as compared to the same period in 2021.

Income taxes increased to $49.6 million for the third quarter of 2022, as compared to $41.7 million for the third quarter of 2021 and represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to the Carrier joint ventures, which are primarily taxed as partnerships for income tax purposes;

therefore, Carrier is responsible for its proportionate share of income taxes attributable to its share of earnings from these joint ventures.

The effective income tax rates attributable to us were 23.8% and 23.4% for the quarters ended June 30, 2022 and 2021, respectively.

The increase was primarily due to higher state income taxes, proportionately higher income, and lower share-based compensation deductions in the second quarter of 2022 as compared to the same period in 2021.

Net Income Attributable to Watsco, Inc.

The effective income tax rates attributable to us were 23.8% and 22.8% for the quarters ended September 30, 2022 and 2021, respectively.

The increase was primarily due to higher state income taxes and proportionately higher income in the third quarter of 2022 as compared to tax credits and share-based compensation deductions in the third quarter of 2021.

Net Income Attributable to Watsco, Inc.

for the quarter ended June 30, 2022 increased $48.5 million, or 34%, compared to the same period in 2021.

The increase was primarily driven by higher revenues and expanded profit margins, partially offset by higher selling, general and administrative expenses, income taxes, and an increase in the net income attributable to the non-controlling

First Half of 2022 Compared to First Half of 2021

Revenues for the first half of 2022 increased $671.6 million, or 22%, as compared to the first half of 2021, including $102.1 million attributable to the new locations acquired and $23.9 million from other locations opened during the preceding 12 months, offset by $7.3 million from locations closed.

Net income attributable to Watsco for the quarter ended September 30, 2022 increased $16.8 million, or 12%, compared to the same period in 2021.

The increase was primarily driven by higher revenues, partially offset by higher income taxes and an increase in the net income attributable to the non-controlling

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Revenues for the nine months ended September 30, 2022 increased $924.8 million, or 19%, including $104.2 million attributable to new locations acquired and $30.4 million from other locations opened during the preceding 12 months, offset by $11.2 million from locations closed.

Sales of HVAC equipment (69% of sales) increased 18%, sales of other HVAC products (27% of sales) increased 20% and sales of commercial refrigeration products (4% of sales) increased 25%.

On a same-store basis, revenues increased $552.9 million, or 19%, as compared to the same period in 2021, reflecting an 18% increase in sales of HVAC equipment (69% of sales), which included a 19% increase in sales of residential HVAC equipment (20% increase in U.S.

markets) and a 15% increase in sales of commercial HVAC equipment, a 19% increase in sales of other HVAC products (27% of sales) and a 30% increase in commercial refrigeration products (4% of sales).

On a same-store basis, revenues increased $801.4 million, or 17%, as compared to the same period in 2021, reflecting a 16% increase in sales of HVAC equipment (69% of sales),

which included 17% growth in U.S.

markets for both residential and commercial HVAC equipment, an 18% increase in sales of other HVAC products (27% of sales) and a 25% increase in commercial refrigeration products (4% of sales).

For HVAC equipment, the increase in revenues was primarily due to the realization of price increases and a higher mix of high-efficiency air conditioning and heating systems, which sell at higher unit prices, resulting in a 15% increase in the average selling price and a 2% increase in volume, as well as higher sales of commercial HVAC equipment.

Gross profit for the first half of 2022 increased $273.1 million, or 35%, as compared to the first half of 2021, primarily as a result of increased revenues.

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

Gross profit for the nine months ended September 30, 2022 increased $341.3 million, or 27%, primarily as a result of increased revenues.

Gross profit margin for the nine months ended September 30, 2022 improved 170 basis-points to 28.0% versus 26.3% for the same period in 2021, primarily due to the impact of pricing and sales mix for residential HVAC equipment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first half of 2022 increased $113.8 million, or 23%, as compared to the first half of 2021, primarily due to increased revenues from existing and newly acquired locations.

Selling, general and administrative expenses as a percentage of revenues for the six months ended June 30, 2022 increased to 16.4% versus 16.2% for the same period in 2021.

On a same-store basis, selling, general and administrative expenses increased 18% as compared to the same period in 2021, primarily due to increased higher variable selling costs driven by the increase in revenues, investments in headcount, and new locations opened in 2022.

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

Selling, general and administrative expenses for the nine months ended September 30, 2022 increased $153.4 million, or 20%, primarily due to increased revenues and newly acquired locations.

Selling, general and administrative expenses as a percentage of revenues increased to 16.2% for the nine months ended September 30, 2022 as compared to 16.1% for the same period in 2021.

On a same-store basis, selling, general and administrative expenses increased 16% as compared to the same period in 2021, primarily due to increased higher variable selling costs driven by the increase in revenues, investments in employee headcount, technology, and new locations opened in 2022.

Other income of $17.3 million and $16.3 million for the nine months ended September 30, 2022 and 2021, respectively, represented our share of the net income of RSI, in which we have a 38.1% equity interest.

Interest Expense, Net

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

Income taxes increased to $96.1 million for the first half of 2022, as compared to $59.9 million for the first half of 2021 and represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to the Carrier joint ventures, which are primarily taxed as partnerships for income tax purposes;

Interest expense, net for the nine months ended September 30, 2022 increased $1.4 million, or 184%, primarily as a result of an increase in average outstanding borrowings and a higher effective interest rate, in each case under our revolving credit facility, as compared to the same period in 2021.

Income taxes increased to $145.7 million for the nine months ended September 30, 2022, as compared to $101.6 million for the nine months ended September 30, 2021 and represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to the Carrier joint ventures, which are primarily taxed as partnerships for income tax purposes;

therefore, Carrier is responsible for its proportionate share of income taxes attributable to its share of earnings from these joint ventures.

The effective income tax rates attributable to us were 23.8% and 23.0% for the first half of 2022 and 2021, respectively.

The increase was primarily due to higher state income taxes, proportionately higher income, and lower share-based compensation deductions in 2022 as compared to 2021.

Net Income Attributable to Watsco, Inc.

The effective income tax rates attributable to us were 23.8% and 22.9% for the nine months ended September 30, 2022 and 2021, respectively.

The increase was primarily due to higher state income taxes and proportionately higher income in 2022 as compared to tax credits and share-based compensation deductions in 2021.

Net Income Attributable to Watsco, Inc.

for the first half of 2022 increased $106.7 million, or 54%, compared to the same period in 2021.

Net income attributable to Watsco for the nine months ended September 30, 2022 increased $123.4 million, or 36%, compared to the same period in 2021.

The increase was primarily driven by higher revenues and expanded profit margins, partially offset by higher income taxes and an increase in the net income attributable to the non-controlling

Liquidity and Capital Resources

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Additionally, we may also generate cash through the issuance and sale of our Common stock.

As of June 30, 2022, we had $129.0 million of cash and cash equivalents, of which $99.3 million was held by foreign subsidiaries.

As of September 30, 2022, we had $130.2 million of cash and cash equivalents, of which $103.3 million was held by foreign subsidiaries.

The repatriation of cash balances from our foreign subsidiaries could have adverse tax impacts or be subject to capital controls;

however, these balances are generally available to fund the ordinary business operations of our foreign subsidiaries without legal restrictions.

We believe that our operating cash flows, cash on hand, funds available for borrowing under our revolving credit agreement, and funds available from sales of our Common stock under our at-the-market

offering program, each of which is described below, will be sufficient to meet our liquidity needs for the foreseeable future.

We believe that our operating cash flows, cash on hand, funds available for borrowing under our revolving credit agreement, and funds available from sales of our Common stock under our ATM Program (as defined below), each of which is described below, will be sufficient to meet our liquidity needs for the foreseeable future.

However, there can be no assurance that our current sources of available funds will be sufficient to meet our cash requirements.

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Working Capital

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

These increases were partially offset by the timing of accounts payable and accrued liabilities.

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

Working capital increased to $1,470.4 million at September 30, 2022 from $1,234.7 million at December 31, 2021, due to (i) higher inventory balances primarily due to the general impact of inflation, greater inventory requirements resulting from strong business conditions, and more extensive inventories in response to various supply chain disruptions and (ii) higher accounts receivable consistent with overall increased sales, which were offset by an increase in accounts payable and accrued liabilities.

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

Cash flows provided by operating activities

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Operating Activities

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

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

Investing Activities

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Financing Activities

The increase in net cash used in financing activities was primarily attributable to $21.0 million in proceeds from the non-controlling

interest for its contribution to the acquisition of TEC in 2021 and an increase in dividends paid in 2022.

The increase in net cash used in financing activities was primarily attributable to higher borrowings under our revolving credit agreement and an increase in dividends paid in 2022, as well as $21.0 million in proceeds from the non-controlling

interest for its contribution to the acquisition of TEC in 2021.

Revolving Credit Agreement

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The credit agreement matures on December 5, 2023.

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

At September 30, 2022 and December 31, 2021, $8.8 million and $89.0 million, respectively, were outstanding under the revolving credit agreement.

The revolving credit agreement contains customary affirmative and negative covenants, including financial covenants with respect to consolidated leverage and interest coverage ratios, and other customary restrictions.

We believe we were in compliance with all covenants at June 30, 2022.

We believe we were in compliance with all covenants at September 30, 2022.

At-the-Market

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The amended and restated sales agreement otherwise retains all material terms of the original sales agreement.

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

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

Contractual Obligations

On October 15, 2022, 975,622 shares of Class B restricted stock held by our Chief Executive Officer (“CEO”) will vest.

The CEO may elect to satisfy the tax withholding obligations in connection with the vesting of the restricted stock either by the Company’s withholding of shares otherwise deliverable to the CEO, or in cash, or any combination of the two.

If the CEO elects to satisfy his tax withholding obligation through the Company’s withholding of shares, then we will satisfy the withholding tax obligations in cash.

Based on the closing price of Watsco’s Class B common stock and withholding tax rates in effect at June 30, 2022, the estimated withholding tax obligation would have been approximately $94.0 million had the shares vested on June 30, 2022.

We intend to satisfy any such withholding obligations using cash on hand or borrowing availability under our revolving credit agreement described above.

On October 15, 2022, 975,622 shares of Class B restricted stock held by an affiliate of our Chief Executive Officer (“CEO”) vested.

The vested shares had a value of $265.1 million based on the closing price of Watsco’s Class B common stock as of that date.

This vested value was treated as taxable compensation to our CEO for income tax purposes and was subject to statutory withholding.

Upon vesting, we funded $104.3 million in statutory withholding, using a combination of cash on hand and borrowing availability under our revolving credit agreement described above, and such amount was satisfied by the CEO through a cash payment of $19.7 million and by surrendering of 311,408 shares of Watsco Class B common stock.

Accordingly, 664,214 shares of Watsco Class B common stock were retained by the affiliate of our CEO, and we retired the surrendered shares.

The value of the vested shares will be deducted on our 2022 income tax return and our provision for income taxes will reflect an income tax benefit and related reduction in our effective tax rate.

Investment in Unconsolidated Entity

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RSI’s shareholders may transfer their respective shares of RSI common stock only to members of the Sigler family or to Carrier Enterprise I, and, at any time from and after the date on which Carrier Enterprise I owns 85% or more of RSI’s outstanding common stock, it has the right, but not the obligation, to purchase from RSI’s shareholders the remaining outstanding shares of RSI common stock.

At June 30, 2022, the estimated purchase amount we would be contingently liable for was approximately $306.0 million.

At September 30, 2022, the estimated purchase amount we would be contingently liable for was approximately $324.0 million.

We believe that our operating cash flows, cash on hand, and funds available for borrowing under our revolving credit agreement would be sufficient to purchase any additional ownership interests in RSI.

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Common Stock Dividends

We paid cash dividends of $4.15 and $3.725 per share of Common stock and Class B common stock during the six months ended June 30, 2022 and 2021, respectively.

On July 1, 2022, our Board of Directors declared a regular quarterly cash dividend of $2.20 per share of both Common and Class B common stock that was paid on July 29, 2022 to shareholders of record as of July 15, 2022.

We paid cash dividends of $6.35 and $5.675 per share of Common stock and Class B common stock during the nine months ended September 30, 2022 and 2021, respectively.

On October 3, 2022, our Board of Directors declared a regular quarterly cash dividend of $2.20 per share of both Common and Class B common stock that was paid on October 31, 2022 to shareholders of record as of October 17, 2022.

On October 18, 2022, our Board of Directors approved an increase to the annual cash dividend per share of Common and Class B common stock to $9.80 per share from $8.80 per share, effective with the quarterly dividend that will be paid in January 2023.

Future dividends and/or changes in dividend rates are at the sole discretion of the Board of Directors and depend upon factors including, but not limited to, cash flow generated by operations, profitability, financial condition, cash requirements, and future prospects.

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In aggregate, 6,370,913 shares of Common and Class B common stock have been repurchased at a cost of $114.4 million since the inception of the program.

At June 30, 2022, there were 1,129,087 shares remaining authorized for repurchase under the program.

At September 30, 2022, there were 1,129,087 shares remaining authorized for repurchase under the program.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis