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 20, 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 July 20, 2006, the Company issued a press release reporting its financial results for the quarter and six months ended June 30, 2006. 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 Number |
Description | |
| 99.1 | Press release dated July 20, 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: July 20, 2006 |
By: | /s/ Ana M. Menendez | ||
| Ana M. Menendez, | ||||
| Chief Financial Officer | ||||
Exhibit Index
| Exhibit Number |
Description | |
| 99.1 | Press release dated July 20, 2006 issued by Watsco, Inc. |
Exhibit 99.1
Watsco Second Quarter EPS Climbs 27% to New Record
$1.03 EPS for Quarter Achieved by 16% Higher Revenues
and Expanded Operating Margins
COCONUT GROVE, FLORIDA, July 20, 2006 – Watsco, Inc. (NYSE:WSO), the largest distributor of air conditioning and heating products, today announced record operating results for the second quarter and six months ended June 30, 2006.
Earnings per share for the second quarter increased 27% to a record $1.03 per diluted share with net income increasing by 28% to a record $28.7 million, compared to 81 cents per diluted share on net income of $22.4 million in 2005. During the quarter, revenues grew 16%, or $69 million, to a record $512 million, with revenue growth of 15% on a same-store basis. Gross profit grew 19%, or $21 million, to $132 million with gross profit margin improving 70 basis-points to 25.9%. Operating income advanced 27%, or $10.0 million, to a record $47.2 million with operating margins expanding 80 basis-points to a record 9.2%.
For the first six months of 2006, earnings per share increased 32% to a record $1.50 per diluted share with net income increasing by 32% to a record $41.8 million, compared to $1.14 per diluted share on net income of $31.6 million in the comparable period of 2005. Revenues grew 15%, or $117 million, to a record $906 million, with revenue growth of 14% on a same-store basis. Gross profit grew 17%, or $34 million, to $233 million with gross profit margin advancing 50 basis-points to 25.7%. Operating income increased 30%, or $16.1 million, to a record $69.0 million with operating margins expanding 90 basis-points to a record 7.6%.
Albert H. Nahmad, Watsco’s President and Chief Executive Officer, stated: “This quarter’s financial performance is the most outstanding in Watsco’s history. Strong demand for our products, higher prices related to the launch of new, higher-efficiency air conditioning systems and improved margins combined to produce terrific top and bottom-line performance. New higher-efficiency products have been well-accepted by the market and even more innovative products will be available in the future to provide a greater number of consumer choices to offset increasing energy costs.”
Mr. Nahmad added: “Investment continues in building Watsco’s network and during the last year we added 23 new locations and expanded product offerings. We are focused on our goal of building the industry’s broadest and most effective network available that serves our contractor customers. The potential is huge as Watsco presently enjoys only 7-8% market share of the estimated $25 billion market for our products.”
There are an estimated 120 million single-family homes in the United States, most of which have central air conditioning and heating systems. Eventually, these systems will wear out and require repair or replacement. Watsco’s focused strategy provides the products, technical solutions and convenience that contractors require to satisfy the needs of homeowners and businesses that depend on the comfort and energy-efficiency provided by HVAC systems.
Watsco will be holding its investor conference call today, July 20, 2006 at 11:00 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 362 locations serving over
38,000 customers in 32 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.
2
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 |
|||||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||
| Revenues |
$ | 512,029 | $ | 443,030 | 16 | % | $ | 906,336 | $ | 788,982 | 15 | % | ||||||||||
| Cost of sales |
379,541 | 331,505 | 673,768 | 590,032 | ||||||||||||||||||
| Gross profit |
132,488 | 111,525 | 19 | % | 232,568 | 198,950 | 17 | % | ||||||||||||||
| Gross profit margin |
25.9 | % | 25.2 | % | 25.7 | % | 25.2 | % | ||||||||||||||
| SG&A expenses |
85,324 | 74,410 | 15 | % | 163,562 | 146,026 | 12 | % | ||||||||||||||
| Operating income |
47,164 | 37,115 | 27 | % | 69,006 | 52,924 | 30 | % | ||||||||||||||
| Operating margin |
9.2 | % | 8.4 | % | 7.6 | % | 6.7 | % | ||||||||||||||
| Interest expense, net |
1,120 | 978 | 15 | % | 1,919 | 2,023 | (5 | )% | ||||||||||||||
| Income before income taxes |
46,044 | 36,137 | 27 | % | 67,087 | 50,901 | 32 | % | ||||||||||||||
| Income taxes |
17,296 | 13,731 | 25,292 | 19,347 | ||||||||||||||||||
| Net income |
$ | 28,748 | $ | 22,406 | 28 | % | $ | 41,795 | $ | 31,554 | 32 | % | ||||||||||
| Earnings per share for Common and Class B common stock: |
||||||||||||||||||||||
| Basic |
$ | 1.10 | $ | 0.86 | 28 | % | $ | 1.60 | $ | 1.21 | 32 | % | ||||||||||
| Diluted |
$ | 1.03 | $ | 0.81 | 27 | % | $ | 1.50 | $ | 1.14 | 32 | % | ||||||||||
| Weighted average Common and Class B common shares and equivalent shares used to calculate earnings per share: |
||||||||||||||||||||||
| Basic |
26,186 | 26,044 | 26,154 | 25,989 | ||||||||||||||||||
| Diluted |
27,891 | 27,771 | 27,937 | 27,663 | ||||||||||||||||||
(Note: Information in the attached press release referring to “same-store basis” excludes the effects of locations acquired or locations opened or closed during the prior twelve months.)
Condensed Consolidated Balance Sheets
(In thousands)
| June 30, 2006 |
December 31, 2005 | |||||
| (Unaudited) | ||||||
| Cash and cash equivalents |
$ | 7,204 | $ | 27,650 | ||
| Accounts receivable, net |
228,723 | 191,747 | ||||
| Inventories |
338,198 | 266,543 | ||||
| Other |
10,426 | 8,051 | ||||
| Total current assets |
584,551 | 493,991 | ||||
| Property and equipment, net |
17,804 | 17,244 | ||||
| Other |
168,029 | 167,496 | ||||
| Total assets |
$ | 770,384 | $ | 678,731 | ||
| Accounts payable and accrued expenses |
$ | 203,271 | $ | 169,219 | ||
| Current portion of long-term obligations |
10,080 | 10,079 | ||||
| Total current liabilities |
213,351 | 179,298 | ||||
| Borrowings under revolving credit agreement |
60,000 | 30,000 | ||||
| Long-term notes, net of current portion |
— | 10,000 | ||||
| Other long-term obligations, net of current portion |
10,940 | 8,783 | ||||
| Total liabilities |
284,291 | 228,081 | ||||
| Shareholders’ equity |
486,093 | 450,650 | ||||
| Total liabilities and shareholders’ equity |
$ | 770,384 | $ | 678,731 | ||
3