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) February 14, 2006
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)
(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 February 14, 2006, the Company issued a press release reporting its financial results for the quarter and year ended December 31, 2005. 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 |
| Exhibit |
Description | |
| 99.1 |
Press release dated February 14, 2006 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: February 14, 2006 | By: | /s/ Ana M. Menendez | ||
| Ana M. Menendez, | ||||
| Chief Financial Officer | ||||
Exhibit Index
| Exhibit |
Description | |
| 99.1 |
Press release dated February 14, 2006 issued by Watsco, Inc. |
Exhibit 99.1
Watsco Reports Record 2005 Fourth Quarter & Full-Year Results
Fourth Quarter EPS More than Doubles to 50 Cents Per Share
Annual EPS Climbs 41% to $2.52 on 28% Sales Growth
COCONUT GROVE, FLORIDA, February 14, 2006 – Watsco, Inc. (NYSE:WSO), the largest distributor of air conditioning and heating products, today announced record operating results for the fourth quarter and year ended December 31, 2005. Sales, gross profit and operating profit reached record levels and combined to produce improved operating margins, record net income and earnings per share for the quarter and for the year.
Earnings per share for the fourth quarter more than doubled to 50 cents per diluted share on net income of $14.1 million, compared to 23 cents per diluted share on net income of $6.2 million during the same period last year. Revenues grew $110 million, or 36%, to $416 million, with HVAC revenues increasing 16% on a same-store basis. Operating income increased $12.1 million to $23.4 million with operating margins rising 190 basis-points to a record 5.6%. On a same-store basis, operating profit increased 73% and operating margins improved 180 basis-points to 5.5%.
Earnings per share for the year increased 41% to $2.52 per diluted share on net income of $70.0 million, compared to $1.79 cents per diluted share on net income of $48.1 million a year ago. Revenues grew $368 million, or 28%, to $1.68 billion with HVAC revenues increasing 11% on a same-store basis. Operating income increased 42% to $116.5 million, with operating margins expanding 70 basis-points to 6.9%. On a same-store basis, operating profit increased 25% and operating margins improved 80 basis-points to 7.0%.
Mr. Albert H. Nahmad, Watsco’s President and Chief Executive Officer, stated: “By all measures, 2005 was a year of outstanding performance for Watsco. We delivered strong rates of growth in sales and earnings and also increased our operating margins to record levels. While we are pleased with these results, we are still a work in process as our approximate 7% share of the $26 billion domestic HVAC market remains relatively small. We are focused on growing our network and adding products and talent to enhance the service and convenience provided to our contractor customers.”
Operating cash flow during the year was $34 million and reflects an additional investment of approximately $20 million of HVAC equipment held at year-end to enhance product availability during the industry’s first quarter 2006 transition to the new minimum efficiency standards. Debt declined 17% to $50.3 million and the Company’s debt-to-total capitalization ratio improved to 10% from 13% from a year ago. During 2005, the dividends paid per share increased 63% to 62 cents per share. In October 2005, the Company announced its quarterly dividend rate would increase 43% to 20 cents per share. Additionally, the Company repurchased 347,600 shares of stock for $17.7 million during 2005.
Watsco will be holding its investor conference call today, February 14, 2006 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 largest distributor of air conditioning, heating and refrigeration equipment and related parts and supplies in the distribution segment of the HVAC industry, currently operating 353 locations serving over 38,000 customers in 31 states. The Company’s goal is to build a national network of locations that provide the finest service and product availability for HVAC 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.
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.
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WATSCO, INC.
Consolidated Results of Operations
(In thousands, except per share data)
| Quarter Ended December 31, |
Percentage Change |
Year Ended December 31, |
Percentage Change |
|||||||||||||||||||
| 2005 |
2004 |
2005 |
2004 |
|||||||||||||||||||
| Revenues |
$ | 416,189 | $ | 306,307 | 36 | % | $ | 1,682,724 | $ | 1,315,024 | 28 | % | ||||||||||
| Cost of sales |
312,227 | 229,448 | 1,259,694 | 978,089 | ||||||||||||||||||
| Gross profit |
103,962 | 76,859 | 35 | % | 423,030 | 336,935 | 26 | % | ||||||||||||||
| Gross profit margin |
25.0 | % | 25.1 | % | 25.1 | % | 25.6 | % | ||||||||||||||
| SG&A expenses |
80,583 | 65,539 | 23 | % | 306,572 | 254,883 | 20 | % | ||||||||||||||
| Operating income |
23,379 | 11,320 | 107 | % | 116,458 | 82,052 | 42 | % | ||||||||||||||
| Operating margin |
5.6 | % | 3.7 | % | 6.9 | % | 6.2 | % | ||||||||||||||
| Interest expense, net |
571 | 915 | (38 | )% | 3,342 | 4,413 | (24 | )% | ||||||||||||||
| Income before income taxes |
22,808 | 10,405 | 119 | % | 113,116 | 77,639 | 46 | % | ||||||||||||||
| Income tax expense |
8,690 | 4,214 | 43,097 | 29,534 | ||||||||||||||||||
| Net income |
$ | 14,118 | $ | 6,191 | 128 | % | $ | 70,019 | $ | 48,105 | 46 | % | ||||||||||
| Basic earnings per share |
$ | 0.54 | $ | 0.24 | 125 | % | $ | 2.69 | $ | 1.89 | 42 | % | ||||||||||
| Diluted earnings per share |
$ | 0.50 | $ | 0.23 | 117 | % | $ | 2.52 | $ | 1.79 | 41 | % | ||||||||||
| Weighted average shares and equivalent shares used to calculate: |
||||||||||||||||||||||
| Basic earnings per share |
26,187 | 25,697 | 26,049 | 25,507 | ||||||||||||||||||
| Diluted earnings per share |
27,969 | 27,178 | 27,769 | 26,931 | ||||||||||||||||||
(Note: The 2005 results include the results of East Coast Metal Distributors (“East Coast”), a Sunbelt-based HVAC distributor with 27 locations acquired in January 2005. Information in the attached press release referring to “same-store basis” excludes the effects of East Coast and other locations acquired or locations opened or closed during the prior twelve months.)
Condensed Consolidated Balance Sheets (in thousands)
| December 31, 2005 |
December 31, 2004 | |||||
| Cash and cash equivalents |
$ | 27,650 | $ | 85,144 | ||
| Accounts receivable, net |
191,747 | 145,213 | ||||
| Inventories |
266,543 | 218,704 | ||||
| Other |
8,051 | 8,638 | ||||
| Total current assets |
493,991 | 457,699 | ||||
| Property and equipment, net |
17,244 | 15,093 | ||||
| Other |
167,496 | 135,497 | ||||
| Total assets |
$ | 678,731 | $ | 608,289 | ||
| Accounts payable and accrued liabilities |
$ | 169,219 | $ | 137,103 | ||
| Current portion of long-term obligations |
10,079 | 10,056 | ||||
| Total current liabilities |
179,298 | 147,159 | ||||
| Borrowings under revolving credit agreement |
30,000 | 30,000 | ||||
| Long-term notes, net of current portion |
10,000 | 20,000 | ||||
| Other long-term obligations |
8,783 | 8,392 | ||||
| Total liabilities |
228,081 | 205,551 | ||||
| Shareholders’ equity |
450,650 | 402,738 | ||||
| Total liabilities and shareholders’ equity |
$ | 678,731 | $ | 608,289 | ||
(Note: Debt-to-total capitalization is computed by dividing total debt into total debt plus shareholders’ equity.)
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