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 22, 2004
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
Coconut Grove, Florida 33133
(Address of Principal Executive Offices, Including Zip Code)
Registrant’s telephone number, including area code (305) 714-4100
N/A
(Former Name or Former Address, if Changed Since Last Report)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
| (c) | Exhibit 99.1—Watsco, Inc. Press Release dated July 22, 2004 |
Item 9. Regulation FD Disclosure
On July 22, 2004, Watsco, Inc. (the “Company”) issued a press release reporting its financial results for the quarter and six months ended June 30, 2004. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and is hereby incorporated by reference.
Item 12. Results of Operations and Financial Condition
On July 22, 2004, the Company issued a press release reporting its financial results for the quarter and six months ended June 30, 2004. 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 (the “Exchange Act”) 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.
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 22, 2004 |
By: |
/s/ Ana M. Menendez | ||
| Ana M. Menendez, | ||||
| Chief Financial Officer | ||||
| Exhibit Number |
Description | |
| 99.1 | Press release dated July 22, 2004 issued by Watsco, Inc. |
Exhibit 99.1
| NEWS RELEASE |
 |
| Barry S. Logan |
Watsco, Inc. | |
| Senior Vice President |
2665 S. Bayshore Drive - Suite 901 | |
| (305) 714-4102 |
Coconut Grove, FL 33133 | |
| e-mail: blogan@watsco.com |
(305) 714-4100 | |
| Fax: (305) 858-4492 | ||
| www.watsco.com |
For Immediate Release:
Watsco Reports Record Second Quarter
Sales, Earnings and Earnings Per Share
Diluted EPS Grows 38% to 72 Cents Per Share on a 9% Sales Increase
MIAMI, FLORIDA, July 22, 2004 – Watsco, Inc. (NYSE:WSO) today announced record operating results for the second quarter and six months ended June 30, 2004.
Second Quarter Results
Diluted earnings per share grew 38% to 72 cents, reflecting record sales, gross profit, gross profit margin, operating income, operating margin and net income.
Sales increased 9% to $373 million, including an 8% increase in same-store sales of residential and light-commercial HVAC products. Gross profit grew 14% to $96 million, with gross profit margin expanding 100 basis-points to 25.8% from 24.8%. Selling, general and administrative expenses increased 4% (3% on a same-store basis) and, as a percentage of revenues, decreased by 100 basis-points to 17.1%.
Operating income advanced 41% to $32.3 million, with operating margins expanding 200 basis-points to 8.7%. Net interest expense decreased 26% to $1.2 million from a 29% decrease in average borrowings. Net income increased 44% to $19.4 million.
Six-Month Results
Diluted earnings per share grew 45% to a record 97 cents, reflecting higher sales, enhanced gross profit margins, effective leveraging of operating costs and lower borrowing costs.
Sales increased 9% to $651 million, including a 7% increase in same-store sales of residential and light-commercial HVAC products. Gross profit grew 13% to a record $168 million, with gross profit margin expanding 90 basis-points to 25.7% from 24.8%. Selling, general and administrative expenses increased 5% (2% on a same-store basis) and, as a percentage of revenues, decreased by 70 basis-points to 19.0%.
Operating income increased 45% to a record $44.0 million, with operating margins expanding 170 basis-points to 6.8%. Net interest expense decreased 25% to $2.3 million from a 28% decrease in average borrowings. Net income increased 51% to a record $26.0 million.
Cash flow provided by operations was $12.1 million for the quarter and a use of cash of $13.3 million for the six-months in response to seasonal demand. Cash flow is expected to grow substantially by the end of 2004 as the second half of the year is typically a strong seasonal period for cash flow. Long-term debt at June 30, 2004 declined 25% to $60.1 million compared to $80.2 million a year ago. The Company’s debt-to-total capitalization ratio improved to 13% at June 30, 2004 versus 19% a year ago.
Albert H. Nahmad, President & Chief Executive Officer commented, “This quarter’s outstanding results represent a break-through for the Company as each major operational and financial metric has reached a record level and has combined to produce a terrific growth rate in earnings per share. These results also reflect our ability and continued emphasis on providing customers the products and services they desire. We are optimistic that the momentum of the first-half of 2004 will continue and produce another record year of performance.”
Watsco will be holding its investor conference call today, July 22, 2004 at 10:00 a.m. Eastern Time. Shareholders interested in participating may call (877) 391-0532. Internet users can listen to a live webcast of the conference call on the Investor Relations section of Watsco’s website at http://www.watsco.com.
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 318 locations serving customers in 31 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, 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 and insurance coverage risks. 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.
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WATSCO, INC.
Consolidated Results of Operations
(In thousands, except per share data)
(Unaudited)
| Quarter Ended June 30, |
Percentage Change |
Six-Months Ended June 30, |
Percentage Change |
|||||||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||||||||
| Revenue |
$ | 372,636 | $ | 340,516 | 9 | % | $ | 651,351 | $ | 597,914 | 9 | % | ||||||||||
| Cost of sales |
276,538 | 256,172 | 483,806 | 449,784 | ||||||||||||||||||
| Gross profit |
96,098 | 84,344 | 14 | % | 167,545 | 148,130 | 13 | % | ||||||||||||||
| Gross profit margin (1) |
25.8 | % | 24.8 | % | 25.7 | % | 24.8 | % | ||||||||||||||
| SG&A expenses |
63,841 | 61,468 | 4 | % | 123,499 | 117,700 | 5 | % | ||||||||||||||
| Operating income |
32,257 | 22,876 | 41 | % | 44,046 | 30,430 | 45 | % | ||||||||||||||
| Operating margin (2) |
8.7 | % | 6.7 | % | 6.8 | % | 5.1 | % | ||||||||||||||
| Interest expense, net |
1,159 | 1,565 | (26 | )% | 2,314 | 3,077 | (25 | )% | ||||||||||||||
| Income before income taxes |
31,098 | 21,311 | 46 | % | 41,732 | 27,353 | 53 | % | ||||||||||||||
| Income tax expense |
11,711 | 7,885 | 15,716 | 10,121 | ||||||||||||||||||
| Net income |
$ | 19,387 | $ | 13,426 | 44 | % | $ | 26,016 | $ | 17,232 | 51 | % | ||||||||||
| Basic earnings per share |
$ | 0.76 | $ | 0.54 | 41 | % | $ | 1.02 | $ | 0.69 | 48 | % | ||||||||||
| Diluted earnings per share |
$ | 0.72 | $ | 0.52 | 38 | % | $ | 0.97 | $ | 0.67 | 45 | % | ||||||||||
| Weighted average shares and equivalent shares used to calculate: |
||||||||||||||||||||||
| Basic earnings per share |
25,455 | 25,016 | 25,384 | 25,069 | ||||||||||||||||||
| Diluted earnings per share |
26,920 | 25,786 | 26,821 | 25,787 | ||||||||||||||||||
| (1) | Gross profit margin represents gross profit divided by revenue. |
| (2) | Operating margin represents operating income divided by revenue. |
Segment Information:
(Unaudited)
| Quarter Ended June 30, |
Six-Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenue: |
||||||||||||||||
| Distribution |
$ | 367,793 | $ | 334,099 | $ | 641,733 | $ | 584,831 | ||||||||
| Staffing |
4,843 | 6,417 | 9,618 | 13,083 | ||||||||||||
| Total |
$ | 372,636 | $ | 340,516 | $ | 651,351 | $ | 597,914 | ||||||||
| Operating income (loss): |
||||||||||||||||
| Distribution |
$ | 36,956 | $ | 26,336 | $ | 52,597 | $ | 37,572 | ||||||||
| Staffing |
(104 | ) | (350 | ) | (136 | ) | (759 | ) | ||||||||
| Corporate |
(4,595 | ) | (3,110 | ) | (8,415 | ) | (6,383 | ) | ||||||||
| Total |
$ | 32,257 | $ | 22,876 | $ | 44,046 | $ | 30,430 | ||||||||
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WATSCO, INC.
Condensed Consolidated Balance Sheets
(In thousands)
| June 30, 2004 |
December 31, 2003 | |||||
| (Unaudited) | ||||||
| Cash and cash equivalents |
$ | 16,548 | $ | 36,339 | ||
| Accounts receivable, net |
174,123 | 137,678 | ||||
| Inventories |
243,297 | 194,267 | ||||
| Other |
11,998 | 9,244 | ||||
| Total current assets |
445,966 | 377,528 | ||||
| Property and equipment, net |
20,396 | 22,066 | ||||
| Goodwill and other assets |
136,103 | 135,501 | ||||
| Total assets |
$ | 602,465 | $ | 535,095 | ||
| Accounts payable and accrued liabilities |
$ | 149,509 | $ | 107,831 | ||
| Current portion of long-term obligations |
104 | 172 | ||||
| 149,613 | 108,003 | |||||
| Borrowings under revolving credit agreement |
30,000 | 30,000 | ||||
| Long-term notes |
30,000 | 30,000 | ||||
| Deferred income taxes and other liabilities |
5,482 | 6,223 | ||||
| Total liabilities |
215,095 | 174,226 | ||||
| Shareholders’ equity |
387,370 | 360,869 | ||||
| Total liabilities and shareholders’ equity |
$ | 602,465 | $ | 535,095 | ||
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