FORM 8-K

 

 

UNITED STATES

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) July 17, 2014

 

LOGO

WATSCO, INC.

 

(Exact name of registrant as specified in its charter)

Florida

 

(State or other jurisdiction of incorporation)

 

1-5581

 

59-0778222

(Commission File Number)   (IRS Employer Identification No.)

2665 South Bayshore Drive, Suite 901

Miami, Florida 33133

 

(Address of principal executive offices, including zip code)

(305) 714-4100

 

(Registrant’s telephone number, including area code)

N/A

 

(Former name or former address, if changed since last report)

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):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d- 2(b))
¨ 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 July 17, 2014, Watsco, Inc., a Florida corporation (the “Company”), issued a press release reporting its financial results for the quarter and six months ended June 30, 2014. A copy of the Company’s press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is hereby incorporated by reference in this Item 2.02.

Item 7.01. Regulation FD Disclosure

The information set forth in Item 2.02 of this Current Report on Form 8-K is incorporated by reference in this Item 7.01.

The information contained in this Current Report on Form 8-K, including Exhibit 99.1 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

 

(d) Exhibits

 

Exhibit

Number

  

Description

99.1    Press release dated July 17, 2014 issued by Watsco, Inc.


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.
Dated: July 17, 2014     By:   /s/ Ana M. Menendez
      Ana M. Menendez,
      Chief Financial Officer

 

 

 


EXHIBIT INDEX

 

Exhibit

Number

  

Description

99.1    Press release dated July 17, 2014 issued by Watsco, Inc.
EX-99.1

Exhibit 99.1

Watsco Achieves Record Sales, Operating Margins, Net Income and

EPS During Second Quarter

 

 

Strong U.S. Unit Growth for High-Efficiency Residential HVAC Systems,

Market Share Gains & Operating Efficiencies Drive Performance

MIAMI, FLORIDA – (BUSINESS WIRE), July 17, 2014 – Watsco, Inc. (NYSE: WSO) today reported record results for the second quarter and for the six months ended June 30, 2014.

Second Quarter Results

Key performance metrics:

    Revenues increased 4% to a record $1.17 billion
    Gross profit margin increased 10 basis-points
    SG&A decreased 20 basis-points as a percentage of sales
    Operating margins expanded 30 basis-points to a record 9.7%
    Earnings per diluted share increased 8% to a record $1.60

Revenue trends:

    HVAC equipment (66% of sales) increased 6%
    U.S. residential equipment increased 8% with gains in market share
    Double-digit growth in high-efficiency residential systems
    Other HVAC products (30% of sales) increased 2%
    Commercial refrigeration products (4% of sales) increased 5%
    Domestic (88% of sales) increased 6% and international decreased 4%

Albert Nahmad, Watsco’s President & Chief Executive Officer stated: “Watsco delivered record performance and the highest operating margin for any quarter in our history driven by a combination of unit growth, a stronger sales mix of high-efficiency HVAC equipment, improved selling margins and operating efficiencies.”

Mr. Nahmad added: “These results also reflect investments in new locations, the addition of more than 200 employees and the development and launch of technologies to generate long-term growth and market share. New locations bring density and convenience to our customers. New employees, including more outside salespeople, counter-sales personnel, commercial HVAC experts and product line champions, intensify our sales and customer-service efforts. Our on-going investments in technology, both in talent and in capital spending, will provide innovative capabilities to sell products and serve our customers as well as provide greater insight into our business. We expect these investments to generate growth, develop share for our vendor partners and further distance ourselves from the competition.”

First Half 2014 Results

Key performance metrics:

    Revenues increased 5% to a record $1.93 billion
    Gross profit margin increased 10 basis-points
    SG&A decreased 20 basis-points as a percentage of sales
    Operating margins expanded 30 basis-points to 7.7%, matching the record
    Earnings per diluted share climbed 11% to a record $2.08


Revenue trends:

    HVAC equipment (64% of sales) increased 7%
    U.S. residential HVAC equipment increased 10% with gains in market share
    Other HVAC products (31% of sales) increased 3%
    Commercial refrigeration products (5% of sales) increased 4%
    Domestic (87% of revenues) increased 7% and international decreased 4%

Dividends

Dividends increased 61% during the first six months of 2014. In April, the Company raised its quarterly cash dividend rate 50% to 60 cents per share, which will be reflected in the dividend payment on July 31st. This year marks the 40th consecutive year that Watsco has paid quarterly dividends.

Purchase of Additional 10% Interest of Carrier Enterprise

On July 1, 2014, the Company exercised its second option to purchase an additional 10% ownership interest in Carrier Enterprise LLC for cash consideration of approximately $90 million. This raises the Company’s ownership interest in Carrier Enterprise to 80%.

Outlook for 2014

Watsco’s outlook for full-year 2014 diluted earnings per share is within the range of $4.20 to $4.40 per diluted share, representing a prospective annual growth rate of earnings per share of 14% to 20%.

Conference Call Information

Date: July 17, 2014

Time: 10:00 a.m. (EDT)

Webcast: http://investors.watsco.com

Dial-in number: United States (866) 652-5200 / International (412) 317-6060

A replay of the conference call will be available on the Company’s website.

About Watsco

Watsco improves indoor living and working environments with air conditioning and heating solutions that provide comfort regardless of the outdoor climate. Our solutions also promote healthier indoor spaces by removing pollutants from the indoor air that can lead to asthma, allergies and reductions in productivity. Furthermore, since heating and cooling accounts for approximately half of the energy consumed in a typical United States home, we offer consumers the greatest opportunity to save money on energy by replacing existing air conditioning and heating systems with more energy efficient and environmentally friendly solutions.

 

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There are approximately 89 million central air conditioning and heating systems installed in the United States that have been in service for more than 10 years. Older systems often operate below today’s government mandated energy efficiency and environmental standards. Watsco has an opportunity to accelerate the replacement of these systems at a scale greater than our competitors as the movement toward reducing energy consumption and its environmental impact continues. We operate from 570 locations in the United States, Canada, Mexico and Puerto Rico, with additional market coverage on an export basis to Latin America and the Caribbean. As the industry leader, significant growth potential remains given that the estimated marketplace in the Americas for HVAC/R products is $35 billion. Additional information about Watsco may be found at http://www.watsco.com.

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, new housing starts and completions, capital spending in commercial construction, consumer spending and debt levels, 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, the ability of the Company to expand its business, 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 with the Securities and Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K.

 

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WATSCO, INC.

Condensed Consolidated Results of Operations

(In thousands, except per share data)

(Unaudited)

 

     Quarter Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  

Revenues

   $ 1,170,186      $ 1,120,452      $ 1,932,754      $ 1,834,085   

Cost of sales

     890,913        853,772        1,465,412        1,391,959   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     279,273        266,680        467,342        442,126   

Gross profit margin

     23.9     23.8     24.2     24.1
  

 

 

   

 

 

   

 

 

   

 

 

 

SG&A expenses

     166,293        161,595        318,809        306,487   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     112,980        105,085        148,533        135,639   

Operating margin

     9.7     9.4     7.7     7.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

     1,247        1,688        2,256        2,870   

Income before income taxes

     111,733        103,397        146,277        132,769   

Income taxes

     33,348        30,815        43,489        39,098   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     78,385        72,582        102,788        93,671   

Less: net income attributable to noncontrolling interest

     22,284        21,264        29,934        28,968   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Watsco, Inc.

   $ 56,101      $ 51,318      $ 72,854      $ 64,703   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share:

        

Net income attributable to Watsco, Inc. shareholders

   $ 56,101      $ 51,318      $ 72,854      $ 64,703   

Less: distributed and undistributed earnings allocated to non-vested (restricted) common stock

     4,281        3,623        5,526        4,560   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings allocated to Watsco, Inc. shareholders

   $ 51,820      $ 47,695      $ 67,328      $ 60,143   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share

     32,353,045        32,248,855        32,329,376        32,231,246   

Diluted earnings per share for Common and Class B common stock

   $ 1.60      $ 1.48      $ 2.08      $ 1.87   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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WATSCO, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

     June 30,      December 31,  
     2014      2013  

Cash and cash equivalents

   $ 16,865       $ 19,478   

Accounts receivable, net

     549,901         399,565   

Inventories

     759,973         583,154   

Other

     19,479         18,905   
  

 

 

    

 

 

 

Total current assets

     1,346,218         1,021,102   

Property and equipment, net

     45,139         45,418   

Goodwill, intangibles, net and other

     599,482         603,011   
  

 

 

    

 

 

 

Total assets

   $ 1,990,839       $ 1,669,531   
  

 

 

    

 

 

 

Accounts payable and accrued expenses

   $ 385,487       $ 243,399   

Current portion of long-term obligations

     165         107   
  

 

 

    

 

 

 

Total current liabilities

     385,652         243,506   

Borrowings under revolving credit agreement

     348,787         230,044   

Deferred income taxes and other liabilities

     70,866         68,589   
  

 

 

    

 

 

 

Total liabilities

     805,305         542,139   
  

 

 

    

 

 

 

Watsco’s shareholders’ equity

     894,728         840,396   

Noncontrolling interest

     290,806         286,996   
  

 

 

    

 

 

 

Shareholders’ equity

     1,185,534         1,127,392   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 1,990,839       $ 1,669,531   
  

 

 

    

 

 

 

WATSCO, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

     Six Months Ended June 30,  
     2014     2013  

Cash flow from operating activities:

    

Net income

   $ 102,788      $ 93,671   

Non-cash items

     17,152        17,617   

Changes in working capital

     (185,098     (188,195
  

 

 

   

 

 

 

Net cash used in operating activities

     (65,158     (76,907
  

 

 

   

 

 

 

Cash flow from investing activities:

    
  

 

 

   

 

 

 

Capital expenditures, net

     (5,570     (6,803
  

 

 

   

 

 

 

Cash flow from financing activities:

    

Dividends on Common and Class B Common stock

     (27,909     (17,298

Net proceeds under revolving credit agreement

     118,767        84,254   

Distributions to noncontrolling interest

     (25,817     (31,489

Other

     3,148        790   
  

 

 

   

 

 

 

Net cash provided by financing activities

     68,189        36,257   
  

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

     (74     (786
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (2,613     (48,239

Cash and cash equivalents at beginning of period

     19,478        73,770   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 16,865      $ 25,531   
  

 

 

   

 

 

 

 

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