SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
Report (Date of Earliest Event Reported) October
27, 2009
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WATSCO,
INC.
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(Exact
Name of Registrant as Specified in Its Charter)
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Florida
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(State
or Other Jurisdiction of Incorporation)
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1-5581
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59-0778222
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|||
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(Commission
File Number)
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(IRS
Employer Identification No.)
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2665
South Bayshore Drive, Suite 901
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Coconut
Grove, Florida 33133
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(Address
of Principal Executive Offices, Including Zip Code)
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(305)
714-4100
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(Registrant's
Telephone Number, Including Area Code)
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N/A
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(Former
Name or Former Address, if Changed Since Last Report)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-
2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 2.02. Results of Operations and Financial
Condition
On
October 27, 2009, the Company issued a press release reporting its financial
results for the quarter and nine months ended September 30, 2009. A
copy of the Company’s press release is attached hereto as Exhibit 99.1 and is
hereby incorporated by reference.
The information in this Form 8-K and
the Exhibit attached hereto shall be deemed “furnished” and not deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any Company filing under the Securities Act of
1933, as amended.
Item 9.01. Financial Statements and
Exhibits
(c) Exhibits
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Exhibit
Number
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Description
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99.1
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Press
release dated October 27, 2009 issued by Watsco,
Inc.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| WATSCO, INC. | |||
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Dated: October
27, 2009
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By:
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/s/ Ana M. Menendez | |
| Ana M. Menendez, | |||
| Chief Financial Officer | |||
Exhibit
99.1
Watsco
Reports Third Quarter Results
___________
Record
Revenues, Strong Reduction in Operating Costs & Increased Cash
Flow;
Adjusted
EPS 71 Cents Per Share
COCONUT
GROVE, Florida -- (BUSINESS WIRE), October 27, 2009 -- Watsco, Inc. (NYSE:WSO)
today reported its results for the third quarter and for the nine months ended
September 30, 2009. The 2009 third quarter results include Carrier
Enterprise, a joint venture formed on July 1, 2009 with Carrier Corporation
which added 95 locations to the Watsco network. Watsco’s consolidated
revenues on a pro forma basis were $3 billion in 2008. Watsco owns
60% of Carrier Enterprise and Carrier owns 40%.
Watsco is
the largest distributor of air conditioning, heating and refrigeration equipment
and related parts and supplies in the HVAC/R industry, currently operating 508
locations serving over 50,000 customers in 36 states, Puerto Rico, Latin America
and the Caribbean.
Third
Quarter Results
Revenues
were a record $742 million, a 56% increase over 2008, and include $337 million
of revenues added by Carrier Enterprise. Same-store sales declined
15% and reflect a 9% decline in sales of air conditioning and heating (HVAC)
equipment (50% of sales), a 24% decrease in other HVAC products (38% of sales)
and a 17% decrease in the sale of refrigeration products (12% of
sales). Revenues reflect a richer sales mix of high-efficiency air
conditioning systems offset by lower demand due to economic
conditions. Results also reflect lower pricing for certain
commodity-based products and notable weakness in the Company’s western
operations. The combination of these two factors impacted same-store
sales by $36 million, or half, of the relative change in sales and affected
diluted earnings per share by approximately 16 cents for the
quarter.
Gross
profit was a record $172 million, a 36% increase over 2008 and gross profit
margin was 23.2%. On a same-store basis, gross profit was $104
million and gross profit margin was 25.8% versus 26.7% last year, reflecting
competitive conditions and a 31 basis-point impact from the shift in sales mix
toward HVAC equipment, which traditionally generates lower gross profit margin
versus non-equipment products.
Selling,
general and administrative (SG&A) expenses were $131 million and as a
percentage of sales were 17.6%. Excluding the additional Carrier
Enterprise locations, SG&A expenses were $76 million, a decline of $13
million or 14%. Operating income increased 10% to $41.5 million with
an operating margin of 5.6% (6.8% on a same-store basis).
Diluted
earnings per share were 71 cents on an adjusted basis and 66 cents per share on
a GAAP basis versus 81 cents last year. Net income was $22.1 million
excluding one-time transaction costs and $21.1 million on a GAAP basis versus
$23.3 million last year. The results of Carrier Enterprise added approximately 8
cents to diluted earnings per share during the quarter.
The
results include $2.5 million of one-time transaction costs, which are included
in SG&A expenses in accordance with FASB Accounting Standards Codification
Topic 805 (formerly SFAS No. 141R), (a 3 cent impact to diluted earnings per
share). In addition, the Company adopted FASB Accounting Standards
Codification Topic 260 (formerly FSP EITF 03-06-1) in 2009, an accounting
pronouncement that changes the computation of earnings per share as it relates
to non-vested share-based payment awards (a 2 cent impact to diluted earnings
per share). Results also include the issuance of 3,080,469 shares of Watsco
common stock issued to Carrier in connection with the Carrier Enterprise
transaction.
Albert H.
Nahmad, Watsco's President & Chief Executive Officer, stated, “We are
pleased with the continued movement toward higher-efficiency,
environmentally-friendly air conditioning systems, especially given the economic
conditions. Our quarterly results reflect increased unit sales in
this product category at higher prices generating 51% sales growth over last
year, and represent 30% of unitary equipment sales. Business trends
improved during the course of the quarter due in part to this improvement in
sales mix. Longer-term, we expect movement toward high-efficiency to
accelerate once market conditions for replacement air conditioning normalize to
historical levels and pent-up demand begins to unwind. In the
meantime, we continue to aggressively manage operating costs.”
Mr.
Nahmad added, “We are also pleased with the results of Carrier Enterprise, which
performed comparatively well and expanded operating margins in a difficult
market environment. This transformational transaction provides
immense opportunities to grow our business. As importantly, our
financial position remains conservative and positions us to make additional
investments in building the Watsco network.”
Nine-Month
Results
Revenues
were a record $1.4 billion, a 5% increase over 2008 and include revenues added
by Carrier Enterprise. Same-store sales declined 19%, including
a 14% decrease in the sale of HVAC equipment (47% of sales), a 26% decrease in
other HVAC products (40% of sales) and a 16% decrease in the sale of
refrigeration products (13% of sales). Revenues reflect a richer sales mix of
high-efficiency air conditioning systems offset by lower demand due to economic
conditions. Results also reflect lower pricing for certain
commodity-based products and notable weakness in the Company’s western
operations. These two factors impacted same-store sales by $118
million, or almost half, of the relative change in sales and affected diluted
earnings per share by approximately 65 cents for the period.
Gross
profit was a record $347 million and gross profit margin was
24.1%. On a same-store basis, gross profit was $279 million and gross
profit margin was 25.4%, reflecting a 17 basis-point difference from the shift
in sales mix toward air conditioning equipment and a 36 basis-point impact from
lower margins on certain commodity-based products. Gross profit
margin of such commodity-based products normalized during the third quarter of
2009.
SG&A
expenses were $281 million and as a percentage of sales were
19.5%. Excluding the additional Carrier Enterprise locations and
transaction costs, SG&A expenses were $226 million, a decline of $37 million
or 14%. Operating income was $66.2 million with an operating margin of 4.6%
(4.9% on a same-store basis and excluding one-time transaction
costs).
Diluted
earnings per share were $1.31 on an adjusted basis and $1.21 per share on a GAAP
basis versus $1.98 last year. Net income was $38.0 million excluding
one-time transaction costs and $36.2 million on a GAAP basis compared to $57.0
million in 2008.
Cash
Flow and Dividends
During
the first nine months of 2009, operating cash flow increased 3% to $38.4
million. Over the last 12 months, operating cash flow was $115
million (approximately $4.11 per diluted share) and free cash flow (operating
cash flow less net capital expenditures) was $110 million. Dividends
of $41.7 million were paid during the nine-month period ended September 30,
2009, an increase of 14% over 2008. Watsco’s quarterly dividend rate
was raised 7% to 48 cents per share in April 2009. Watsco has paid dividends
every quarter for over 30 years, and more recently has established a consistent
track record of paying increasing dividends. At September 30, 2009,
Watsco’s debt-to-total capitalization was 6%.
2
Mr.
Nahmad added, “Once again we are producing strong cash flow and our balance
sheet remains in solid condition. We are also happy that shareholders
continue to meaningfully participate through increasing
dividends. Since 2000, our cumulative operating cash flow was
approximately $650 million compared to net earnings of approximately $475
million, surpassing by far our stated goal of generating cash flow greater than
net income.”
Conference
Call
Watsco is
hosting a conference call to discuss its third quarter earnings results today at
10:00 a.m. (EDT). The conference call will be web-cast by CCBN's StreetEvents at
http://www.watsco.com. A replay of the conference call will be available on the
Company's website. For those unable to connect to the web-cast, you may listen
via telephone. The dial-in number is (866) 740-9405. Please call five to ten
minutes prior to the scheduled start time as the number of telephone connections
is limited.
Watsco is
the largest distributor of air conditioning, heating and refrigeration equipment
and related parts and supplies in the HVAC/R industry, currently operating 508
locations serving over 50,000 customers in 36 states, Puerto Rico, Latin America
and the Caribbean. The Company's goal is to build a network of locations that
provide the finest service and product availability for HVAC/R contractors,
assisting and supporting them as they serve the country's homeowners and
businesses. Additional information about Watsco may be found on the Internet at
http://www.watsco.com.
Use of Non-GAAP Financial
Information
In this
release, the Company discloses pro forma or non-GAAP measures of adjusted
diluted earnings per share, free cash flow and same-store sales. Information
referring to “same-store basis” excludes the effects of locations acquired,
locations opened in new markets and locations closed during the prior 12 months.
The Company believes that this pro forma information provides greater
comparability regarding its ongoing operating performance. These measures should
not be considered an alternative to measurements required by accounting
principles generally accepted in the United States (GAAP), such as diluted
earnings per share and operating cash flow. These pro forma measures are
unlikely to be comparable to pro forma information provided by other
companies.
This
document includes certain "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
management's current expectations and are subject to uncertainty and changes in
circumstances. Actual results may differ materially from these expectations due
to changes in economic, business, competitive market, regulatory and other
factors, including, without limitation, the effects of supplier concentration,
competitive conditions within Watsco's industry, seasonal nature of sales of
Watsco's products, insurance coverage risks and final GAAP adjustments.
Forward-looking statements speak only as of the date the statement was made.
Watsco assumes no obligation to update forward-looking information to reflect
actual results, changes in assumptions or changes in other factors affecting
forward-looking information. Detailed information about these factors and
additional important factors can be found in the documents that Watsco files
from time to time with the Securities and Exchange Commission, such as Form
10-K, Form 10-Q and Form 8-K.
3
WATSCO,
INC.
Consolidated
Results of Operations
(In
thousands, except per share data)
(Unaudited)
|
Quarter
Ended
September
30,
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Nine
Months Ended
September
30,
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|||||||||||||||
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2009
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2008
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2009
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2008
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Revenues
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$ | 741,895 | $ | 475,225 | $ | 1,438,209 | $ | 1,365,446 | ||||||||
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Cost
of sales
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569,886 | 348,552 | 1,090,981 | 1,009,709 | ||||||||||||
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Gross
profit
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172,009 | 126,673 | 347,228 | 355,737 | ||||||||||||
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Gross
profit margin
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23.2 | % | 26.7 | % | 24.1 | % | 26.1 | % | ||||||||
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SG&A
expenses
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130,557 | 88,969 | 281,044 | 262,881 | ||||||||||||
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Operating
income
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41,452 | 37,704 | 66,184 | 92,856 | ||||||||||||
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Operating
margin
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5.6 | % | 7.9 | % | 4.6 | % | 6.8 | % | ||||||||
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Interest
expense, net
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1,031 | 632 | 1,703 | 1,614 | ||||||||||||
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Income
before income taxes
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40,421 | 37,072 | 64,481 | 91,242 | ||||||||||||
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Income
taxes
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13,280 | 13,740 | 22,230 | 34,216 | ||||||||||||
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Net
income
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27,141 | 23,332 | 42,251 | 57,026 | ||||||||||||
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Less: net
income attributable to noncontrolling interest
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6,010 | - | 6,010 | - | ||||||||||||
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Net
income attributable to Watsco, Inc.
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$ | 21,131 | $ | 23,332 | $ | 36,241 | $ | 57,026 | ||||||||
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Earnings
per share for Common and Class B common stock:
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Basic
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$ | 0.66 | $ | 0.82 | $ | 1.21 | $ | 2.02 | ||||||||
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Diluted
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$ | 0.66 | $ | 0.81 | $ | 1.21 | $ | 1.98 | ||||||||
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Weighted-average
Common and Class B common shares
and
equivalent shares used to calculate earnings per
share:
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||||||||||||||||
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Basic
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30,179 | 26,539 | 27,922 | 26,428 | ||||||||||||
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Diluted
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30,437 | 27,118 | 27,922 | 27,022 | ||||||||||||
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Calculation
of net income used to calculate basic and diluted earnings per
share:
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||||||||||||||||
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Basic
earnings per share:
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||||||||||||||||
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Net
income available to Watsco, Inc. shareholders
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$ | 21,131 | $ | 23,332 | $ | 36,241 | $ | 57,026 | ||||||||
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Less: distributed
and undistributed income allocated to non-vested common
stock
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(1,162 | ) | (1,473 | ) | (2,480 | ) | (3,595 | ) | ||||||||
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Earnings
allocated to shareholders
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$ | 19,969 | $ | 21,859 | $ | 33,761 | $ | 53,431 | ||||||||
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Diluted
earnings per share:
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||||||||||||||||
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Net
income available to Watsco, Inc. shareholders
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$ | 21,131 | $ | 23,332 | $ | 36,241 | $ | 57,026 | ||||||||
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Less: distributed
and undistributed income allocated to non-vested common
stock
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(1,159 | ) | (1,460 | ) | (2,480 | ) | (3,569 | ) | ||||||||
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Earnings
allocated to shareholders
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$ | 19,972 | $ | 21,872 | $ | 33,761 | $ | 53,457 | ||||||||
4
WATSCO,
INC.
Condensed
Consolidated Balance Sheets
(In
thousands)
(Unaudited)
|
September
30,
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December
31,
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|||||||
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2009
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2008
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|||||||
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Cash
and cash equivalents
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$ | 65,317 | $ | 41,444 | ||||
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Accounts
receivable, net
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324,972 | 151,317 | ||||||
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Inventories
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457,791 | 250,914 | ||||||
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Other
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18,486 | 13,028 | ||||||
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Total
current assets
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866,566 | 456,703 | ||||||
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Property
and equipment, net
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33,567 | 24,209 | ||||||
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Other
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358,100 | 235,149 | ||||||
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Total
assets
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$ | 1,258,233 | $ | 716,061 | ||||
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Accounts
payable and accrued expenses
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$ | 287,588 | $ | 107,556 | ||||
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Current
portion of long-term obligations
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178 | 268 | ||||||
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Total
current liabilities
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287,766 | 107,824 | ||||||
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Borrowings
under revolving credit agreement
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43,000 | 20,000 | ||||||
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Deferred
income taxes and other liabilities
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25,150 | 17,577 | ||||||
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Total
liabilities
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355,916 | 145,401 | ||||||
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Watsco's
shareholders’ equity
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746,288 | 570,660 | ||||||
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Noncontrolling
interest
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156,029 | - | ||||||
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Shareholders’
equity
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902,317 | 570,660 | ||||||
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Total
liabilities and shareholders’ equity
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$ | 1,258,233 | $ | 716,061 | ||||
5
WATSCO,
INC.
Supplemental
Data
Reconciliation
of GAAP Financial Results to Non-GAAP Measures
(Unaudited)
|
Quarter
Ended
September
30,
|
Nine
Months Ended
September
30,
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|||||||||||||||
|
2009
|
2008
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2009
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2008
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|||||||||||||
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Diluted
earnings per share (GAAP)
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$ | 0.66 | $ | 0.81 | $ | 1.21 | $ | 1.98 | ||||||||
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Effect
of transaction costs
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0.03 | -- | 0.06 | -- | ||||||||||||
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Effect
of FASB ASC 260 (FSP EITF 03-06-1)
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0.02 | 0.03 | 0.04 | 0.08 | ||||||||||||
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Diluted
earnings per share (Non-GAAP)
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$ | 0.71 | $ | 0.84 | $ | 1.31 | $ | 2.06 | ||||||||
6