Watsco Reports Record 2001 Cash Flow and Earnings Per Share, Excluding Charges
Earnings per share for 2001 increased 30% to 90 cents per share versus 69 cents in 2000. Net income increased 28% to $24.4 million versus $19.1 million a year ago. Earnings results include the impact of restructuring and other charges of 13 cents per share in 2001 and 30 cents per share in 2000 as summarized in the attached financial schedules. Excluding charges, earnings per share in 2001 increased 4% to a record $1.03 versus 99 cents last year on a 3% increase in net income to $28.1 million.
Operating profit in 2001 increased 5% to $48.3 million. Excluding charges, operating profit was $54.1 million. Operating profit in the Company's distribution segment (96% of 2001 sales) was flat despite lower sales volume with operating margins improving by 10 basis-points to 5.3%. These results were offset by lower profitability in the Company's staffing operation reflecting soft market conditions for temporary staffing services.
Sales in 2001 were $1.24 billion, including a 1% same-store sales decrease in residential and light-commercial HVAC products and a 15% same-store sales decline in manufactured housing products. 2001 sales results also include the closure of 42 distribution and 6 staffing locations, the discontinuance of certain product lines and lower same-store sales in staffing.
Earnings per share in the fourth quarter was 4 cents per share on net income of $1.0 million versus a loss of 32 cents per share on a loss of $8.5 million in 2000 (excluding charges, 1 cent loss per share in 2000 on a net loss of $0.2 million).
Operating profit for the quarter was $3.2 million compared to an operating loss of $7.9 million in 2000. Excluding charges, operating profit improved 4%. Distribution segment operating profit increased 45% on lower sales from a 90 basis-point increase in operating margins. Results were offset by lower profitability in staffing operations.
Fourth quarter sales were $273 million, including a 2% same-store sales decrease in residential and light-commercial HVAC products and a 3% increase in same-store sales of manufactured housing products. Sales results also include the effects of location closures, discontinued HVAC product lines and lower sales in staffing.
Interest expense in 2001 declined 25% to $10.0 million from 20% lower average daily borrowings and lower interest rates. Fourth quarter interest expense decreased 41% to $2.0 million also due to lower borrowings and lower interest rates.
Cash flow from operations in 2001 increased 7% to a record $52.6 million. Free cash flow (operating cash flow less capital expenditures) increased 17% to a record $49.2 million. Cash generated from operations was used to reduce debt by $39.9 million and to repurchase $3.2 million of the Company's common stock. At December 31, 2001, the Company's debt-to-total capitalization ratio was 24% versus 31% a year ago.
Watsco's sales performance during 2001 compares favorably to industry data compiled by the Air Conditioning and Refrigeration Institute (ARI). According to the ARI, distributor shipments in 2001 declined 3% in the United States. In contrast, Watsco's same-store sales of similar products decreased 1%, an indicator that a market share increase was achieved.
Albert Nahmad, President and Chief Executive Officer commented: "Soft business conditions affected all companies in the HVAC marketplace this year. We are pleased to have achieved record earnings per share, after excluding the financial impact of restructuring and other charges - all representing important measures that will improve our ongoing operating effectiveness."
Mr. Nahmad added: "We are especially happy with the record level of cash flow in 2001. From 1999 through 2001, we have generated operating cash flow of approximately $144 million, reduced debt by $68 million, repurchased 3.4 million shares of common stock for $35 million and continued our streak of 28 years of paying quarterly dividends - all significant indicators of value to our shareholders."
Watsco is the nation's largest independent distributor of air conditioning, heating and refrigeration equipment and related products in the distribution segment of the HVAC/R industry, currently operating 283 locations serving customers in 30 states. Additional information about Watsco may be found on the Internet 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 and regulatory factors. More detailed information about those factors is contained in Watsco's filings with the Securities and Exchange Commission.
WATSCO, INC.
Consolidated Results of Operations
(In thousands, except share data)
Year Ended December 31,
----------------------------------------------------------
As Pro-forma, as As Pro-forma, as
Reported Adjusted Reported Adjusted
2001 2001 (A) 2000 (B) 2000 (A)
----------- ------------- ----------- -------------
Revenue $ 1,238,646 $ 1,238,646 $ 1,310,166 $ 1,310,166
Cost of
sales 939,606 938,592 1,003,386 998,329
----------- ------------- ----------- -------------
Gross profit 299,040 300,054 306,780 311,837
SG&A expenses 250,716 245,935 260,965 255,022
----------- ------------- ----------- -------------
Operating
profit 48,324 54,119 45,815 56,815
Interest
expense, net (9,955) (9,955) (13,211) (13,211)
Other expense - - (2,169) -
----------- ------------- ----------- -------------
Income before
income taxes 38,369 44,164 30,435 43,604
Income tax
provision (13,928) (16,032) (11,321) (16,221)
----------- ------------- ----------- -------------
Net income $ 24,441 $ 28,132 $ 19,114 $ 27,383
Basic earnings
per share $ 0.94 $ 1.08 $ 0.72 $ 1.03
Diluted earnings
per share $ 0.90 $ 1.03 $ 0.69 $ 0.99
Weighted average shares:
Basic 25,946 25,946 26,549 26,549
Diluted 27,251 27,251 27,793 27,793
Quarter Ended December 31,
--------------------------------------------
As As Pro-forma, as
Reported Reported Adjusted
2001 2000 (B) 2000 (A)
-------------- ------------ -------------
Revenue $ 273,376 $ 289,646 $ 289,646
Cost of sales 207,830 226,169 221,112
-------------- ------------ -------------
Gross profit 65,546 63,477 68,534
SG&A expenses 62,347 71,407 65,464
-------------- ------------ -------------
Operating profit (loss) 3,199 (7,930) 3,070
Interest expense, net (2,019) (3,393) (3,393)
Other expense - (2,169) -
-------------- ------------ -------------
Income (loss) before
income taxes 1,180 (13,492) (323)
Income tax (provision)
benefit (169) 5,019 120
-------------- ------------ -------------
Net income (loss) $ 1,011 $ (8,473) $ (203)
Basic earnings
(loss) per share $ 0.04 $ (0.32) $ (0.01)
Diluted earnings
(loss) per share $ 0.04 $ (0.32) $ (0.01)
Weighted average shares:
Basic 25,912 26,073 26,073
Diluted 27,264 26,073 26,073
(A) See attached Reconciliation of Income Before Income Taxes
Pro-forma, as Adjusted to Generally Accepted Accounting Principles.
(B) Certain reclassifications have been made to 2000 amounts to
conform to the 2001 presentation.
Reconciliation of Income Before Income Taxes, Pro-forma as
Adjusted to Generally Accepted Accounting Principles:
2001 2000
---- ----
Income Before Income Taxes, Pro-forma as Adjusted $ 44,164 $ 43,604
Restructuring and other charges included in cost
of sales:
Discontinued product lines - distribution segment (328) (4,269)
Accrual of workers compensation costs of
a terminated licensee - staffing segment (686) -
Inventory write-downs - distribution segment - (788)
Restructuring and other charges included in SG&A:
Accounts receivable valuation reserves
- distribution segment (1,085) (1,731)
Location integration and closures
- distribution segment (1,791) (4,212)
Location integration and closures
- staffing segment (1,078) -
Terminated licensees - staffing segment (827) -
Other non-operating charges:
Investment write-down - (2,169)
-------- --------
Income before income taxes (GAAP basis) $ 38,369 $ 30,435
======== ========
Pro-forma Segment Information (excludes charges summarized above):
Year Ended December 31, Quarter Ended December 31,
----------------------- --------------------------
Revenue: 2001 2000 2001 2000
---- ---- ---- ----
Distribution $1,194,587 $1,243,208 $ 263,596 $ 273,102
Staffing 44,059 66,958 9,780 16,544
---------- ---------- --------- ---------
Total $1,238,646 $1,310,166 $ 273,376 $ 289,646
========== ========== ========= =========
Pro-forma
Operating Profit:
Distribution $ 63,866 $ 64,101 $ 7,353 $ 5,084
Staffing 323 2,972 147 1,122
Corporate (10,070) (10,258) (4,301) (3,136)
---------- ---------- --------- ---------
Total $ 54,119 $ 56,815 $ 3,199 $ 3,070
========== ========== ========= =========
Pro-forma
Operating Margin:
Distribution 5.3% 5.2% 2.8% 1.9%
Staffing 0.7% 4.4% 1.5% 6.8%
Consolidated Balance Sheets
(In thousands)
December 31, December 31,
2001 2000
------------ ------------
Cash and cash equivalents $ 9,132 $ 4,781
Accounts receivable, net 143,301 163,770
Inventories 185,943 205,805
Other current assets 18,823 18,179
------------ ------------
Total current assets 357,199 392,535
Property & equipment, net 30,703 30,258
Other non-current assets 132,915 140,677
------------ ------------
Total assets $ 520,817 $ 563,470
============ ============
Accounts payable & accrued liabilities $ 88,015 $ 112,207
Other current liabilities 429 1,887
------------ ------------
88,444 114,094
Borrowings - revolving credit agreement 70,000 138,000
Long-term notes 30,000 --
Other long-term obligations 10,859 7,212
------------ ------------
Total liabilities 199,303 259,306
Shareholders' equity 321,514 304,164
------------ ------------
Total liabilities and equity $ 520,817 $ 563,470
============ ============
CONTACT: Watsco, Inc., Miami
Barry S. Logan, 305/714-4102
blogan@watsco.com
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