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) April 20, 2016

 

 

 

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 April 20, 2016, Watsco, Inc., a Florida corporation (the “Company”), issued a press release reporting its financial results for the quarter ended March 31, 2016. 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 April 20, 2016 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: April 20, 2016

    By:  

/s/ Ana M. Menendez

    Ana M. Menendez,
    Chief Financial Officer


EXHIBIT INDEX

 

Exhibit
Number

  

Description

99.1    Press release dated April 20, 2016 issued by Watsco, Inc.
EX-99.1

Exhibit 99.1

Watsco Sets First Quarter Records for Sales, Earnings, Earnings Per Share,

Operating Margins and Cash Flow

 

 

MIAMI, FLORIDA – (BUSINESS WIRE), April 20, 2016 – Watsco, Inc. (NYSE: WSO) reported record results for the quarter ended March 31, 2016.

Key performance metrics:

 

    9% earnings per share growth to a record 71 cents

 

    8% operating income increase to a record $51 million

 

    20 basis-point expansion in operating margins to a record 6.0%

 

    5% sales growth to a record $851 million (6% increase on a same-store basis)

 

    4% increase in gross profit to a record $212 million (20 basis-point lower gross margin)

 

    40 basis-point decline in SG&A as a percentage of sales to a record low

 

    $42 million record operating cash flow versus a cash use of $17 million last year

 

    $103 million debt reduction versus a year ago

Sales trends:

 

    7% growth in HVAC equipment (65% of sales), including 10% growth in the U.S.

 

    4% sales growth for other HVAC products (30% of sales), including 6% in the U.S.

 

    6% growth in commercial refrigeration products (5% of sales)

Albert H. Nahmad, Watsco’s Chairman and CEO stated: “Watsco experienced consistent growth in both residential and commercial markets, with continued strength in sales of higher-efficiency replacement systems. The results also reflect our continued investment in technology and people to drive sales and innovation in our business. These results are particularly satisfying given the strong results achieved last year during the first quarter that included 32% growth in operating income and 35% increase in EPS.”

It is important to note that the first quarter of each calendar year is highly seasonal due to the nature and timing of the replacement market for air conditioning systems, which is strongest in the second and third quarters. Accordingly, the Company’s first quarter financial results are disproportionately affected by this seasonality.

Technology Strategy

Watsco is actively transforming its business into the digital age by investing in scalable platforms for mobile apps, e-commerce, business intelligence and supply chain optimization. Strategic goals are to further strengthen Watsco’s leadership position, accelerate sales and profit growth, increase the speed and convenience of serving customers and extend the Company’s reach into new geographies and sales channels. First quarter results include an increase of $1.5 million in technology-related spending (approximately 3 cents per share impact).

Dividends & Cash Flow

Watsco has paid dividend for over 40 consecutive years. The Company’s philosophy is to share increasing amounts of cash flow through higher dividends while maintaining a conservative financial position. We announced a 21% increase in our annual dividend rate to $3.40 per share effective January 2016. Future increases in dividends will be considered in light of investment opportunities, cash flow, general economic conditions and the Company’s overall financial condition.

The Company has targeted cash flow from operations to exceed net income in 2016. Since 2000, Watsco’s operating cash flow was approximately $1.6 billion compared to net income of approximately $1.5 billion, surpassing the Company’s stated goal of generating cash flow in excess of net income.


Conference Call Information

Date: April 20, 2016

Time: 10:00 a.m. (EDT)

Webcast: http://investors.watsco.com

Dial-in number: United States (866) 777-2509 / International (412) 317-5413

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

Use of Non-GAAP Financial Information

In this release, the Company discloses non-GAAP measures of same-store basis. Information referring to “same-store basis” excludes the effects of locations acquired or locations opened or closed during the immediately preceding 12 months unless they are within close geographical proximity to existing locations. The Company believes that this information provides greater comparability regarding its ongoing operating performance. These measures should not be considered an alternative to measurements required by accounting principles generally accepted in the United States (GAAP).

About Watsco

Watsco improves indoor living and working environments with air conditioning and heating solutions that provide comfort regardless of the outdoor climate. 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. This is especially important since heating and cooling accounts for approximately half of the energy consumed in a typical U.S. home.

Watsco’s traditional sales channel is through one of its 565 locations in the United States, Canada, Mexico and Puerto Rico, and on an export basis to Latin America and the Caribbean. This network has been built over the last 25 years and serves 88,000 active customers. Watsco is developing and investing in technologies to enable sales via e-commerce, on-line marketplaces and through the retail sales channel. As the industry leader, we believe that significant growth potential remains given that the marketplace for HVAC/R products at the consumer level is estimated to be $80 billion annually. 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 March 31,  
     2016     2015  

Revenues

   $ 851,424      $ 808,972   

Cost of sales

     638,977        604,747   
  

 

 

   

 

 

 

Gross profit

     212,447        204,225   

Gross margin

     25.0     25.2
  

 

 

   

 

 

 

SG&A expenses

     161,779        157,217   
  

 

 

   

 

 

 

Operating income

     50,668        47,008   

Operating margin

     6.0     5.8
  

 

 

   

 

 

 

Interest expense, net

     986        1,377   
  

 

 

   

 

 

 

Income before income taxes

     49,682        45,631   

Income taxes

     15,508        14,331   
  

 

 

   

 

 

 

Net income

     34,174        31,300   

Less: net income attributable to non-controlling interest

     8,637        8,252   
  

 

 

   

 

 

 

Net income attributable to Watsco

   $ 25,537      $ 23,048   
  

 

 

   

 

 

 

Diluted earnings per share:

    

Net income attributable to Watsco shareholders

   $ 25,537      $ 23,048   

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

     2,413        1,868   
  

 

 

   

 

 

 

Earnings allocated to Watsco shareholders

   $ 23,124      $ 21,180   
  

 

 

   

 

 

 

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

     32,537,225        32,431,077   

Diluted earnings per share for Common and Class B common stock

   $ 0.71      $ 0.65   
  

 

 

   

 

 

 

 

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WATSCO, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

     March 31, 2016      December 31, 2015  

Cash and cash equivalents

   $ 32,856       $ 35,229   

Accounts receivable, net

     464,154         451,079   

Inventories

     746,122         673,967   

Other

     18,793         20,990   
  

 

 

    

 

 

 

Total current assets

     1,261,925         1,181,265   

Property and equipment, net

     61,866         62,715   

Goodwill, intangibles, net and other

     553,099         544,462   
  

 

 

    

 

 

 

Total assets

   $ 1,876,890       $ 1,788,442   
  

 

 

    

 

 

 

Accounts payable and accrued expenses

   $ 347,064       $ 270,117   

Current portion of long-term obligations

     187         184   
  

 

 

    

 

 

 

Total current liabilities

     347,251         270,301   

Borrowings under revolving credit agreement

     237,900         245,300   

Deferred income taxes and other liabilities

     71,035         69,120   
  

 

 

    

 

 

 

Total liabilities

     656,186         584,721   
  

 

 

    

 

 

 

Watsco’s shareholders’ equity

     968,068         957,310   

Non-controlling interest

     252,636         246,411   
  

 

 

    

 

 

 

Shareholders’ equity

     1,220,704         1,203,721   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 1,876,890       $ 1,788,442   
  

 

 

    

 

 

 

WATSCO, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

     Quarter Ended March 31,  
     2016     2015  

Cash flow from operating activities:

    

Net income

   $ 34,174      $ 31,300   

Non-cash items

     10,892        11,103   

Changes in working capital

     (3,214     (59,186
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     41,852        (16,783
  

 

 

   

 

 

 

Cash flow from investing activities:

    

Capital expenditures, net

     (2,674     (3,043
  

 

 

   

 

 

 

Cash flow from financing activities:

    

Dividends on Common and Class B Common stock

     (30,033     (24,524

Net (repayments) proceeds under revolving credit agreement

     (7,400     38,497   

Distributions to non-controlling interest

     (7,115     (3,654

Other

     2,910        1,698   
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (41,638     12,017   
  

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

     87        (387
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (2,373     (8,196

Cash and cash equivalents at beginning of period

     35,229        24,447   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 32,856      $ 16,251   
  

 

 

   

 

 

 

 

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