Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

                 [X] Quarterly Report Pursuant To Section 13 or
                  15(d) of the Securities Exchange Act of 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                                       or

              [ ] Transition Report Pursuant To Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                         For the Transition Period From
                                   ___ to ___

                          Commission file number 1-5581

                I.R.S. Employer Identification Number 59-0778222

                                  WATSCO, INC.
                             (a Florida Corporation)
                      2665 South Bayshore Drive, Suite 901
                          Coconut Grove, Florida 33133
                            Telephone: (305) 858-0828

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO _

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: 24,731,302 shares of the
Company's Common Stock ($.50 par value) and 3,206,308 shares of the Company's
Class B Common Stock ($.50 par value) were outstanding as of November 12, 1998.



PART I. FINANCIAL INFORMATION WATSCO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 1998 and December 31, 1997 (In thousands, except per share data) SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 8,450 $ 7,880 Accounts receivable, net 156,706 101,727 Inventories 223,532 173,319 Other current assets 11,157 9,263 Net assets of discontinued operations 12,610 25,892 ------------- ------------ Total current assets 412,455 318,081 Property, plant and equipment, net 30,875 21,870 Other assets 24,861 8,701 Intangible assets, net 104,994 77,388 ------------- ------------ $573,185 $426,040 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations $ 803 $ 958 Accounts payable 70,548 43,802 Accrued liabilities 25,128 15,562 ------------- ------------ Total current liabilities 96,479 60,322 ------------- ------------ Long-term obligations: Borrowings under revolving credit agreement 200,700 134,700 Bank and other debt 4,197 2,541 ------------- ------------ 204,897 137,241 ------------- ------------ Deferred income taxes and credits 2,880 2,879 ------------- ------------ Shareholders' equity: Common Stock, $.50 par value 12,348 7,631 Class B Common Stock, $.50 par value 1,605 1,083 Paid-in capital 187,802 163,996 Retained earnings 75,870 56,724 Unrealized loss on investments, net of tax (2,813) - Unearned compensation related to outstanding restricted stock (5,883) (3,836) ------------- ------------ Total shareholders' equity 268,929 225,598 ------------- ------------ $573,185 $426,040 ============= ============
See accompanying notes to condensed consolidated financial statements. 2 of 12
WATSCO, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Quarter and Nine Months Ended September 30, 1998 and 1997 (In thousands, except per share data) (Unaudited) QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- --------- --------- 1998 1997 1998 1997 --------- --------- --------- --------- Revenue $ 317,028 $ 189,462 $ 760,597 $ 450,436 Cost of sales 245,494 147,887 588,688 350,994 --------- --------- --------- --------- Gross profit 71,534 41,575 171,909 99,442 Selling, general and administrative expenses 51,071 29,771 130,191 73,476 --------- --------- --------- --------- Operating income 20,463 11,804 41,718 25,966 Interest expense, net 3,249 762 7,685 1,744 --------- --------- --------- --------- Income from continuing operations before income taxes 17,214 11,042 34,033 24,222 Income taxes 6,369 4,194 12,592 9,326 --------- --------- --------- --------- Income from continuing operations 10,845 6,848 21,441 14,896 Loss on sale of discontinued operation, net of income taxes -- -- (398) -- Income (loss) from discontinued operations, net of income taxes 271 140 (20) 737 --------- --------- --------- --------- Net income 11,116 6,988 21,023 15,633 Retained earnings at beginning of period 65,407 48,270 56,724 40,784 Common stock dividends (653) (593) (1,877) (1,688) Dividends on preferred stock of subsidiary -- (33) -- (97) --------- --------- --------- --------- Retained earnings at end of period $ 75,870 $ 54,632 $ 75,870 $ 54,632 ========= ========= ========= ========= Basic earnings per share: Income from continuing operations $ 0.39 $ 0.26 $ 0.80 $ 0.60 Loss on sale of discontinued operation -- -- (0.02) -- Income from discontinued operations 0.01 0.01 -- 0.03 --------- --------- --------- --------- Net income $ 0.40 $ 0.27 $ 0.78 $ 0.63 ========= ========= ========= ========= Diluted earnings per share: Income from continuing operations $ 0.37 $ 0.25 $ 0.75 $ 0.56 Loss on sale of discontinued operation -- -- (0.01) -- Income from discontinued operations 0.01 0.01 -- 0.03 --------- --------- --------- --------- Net income $ 0.38 $ 0.26 $ 0.74 $ 0.59 ========= ========= ========= ========= Weighted average shares and equivalent shares used to calculate: Basic earnings per share 27,873 25,929 26,935 24,895 ========= ========= ========= ========= Diluted earnings per share 29,493 27,634 28,568 26,599 ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. 3 of 12
WATSCO, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1998 and 1997 (In thousands) (Unaudited) 1998 1997 --------- --------- Cash flows from operating activities: Net income $ 21,023 $ 15,633 Loss (income) from discontinued operations, net of income taxes 20 (737) Loss on sale of discontinued operation, net of income taxes 398 -- --------- --------- Income from continuing operations 21,441 14,896 Adjustments to reconcile income from continuing operations to net cash used in operating activities: Depreciation and amortization 6,108 3,103 Provision for doubtful accounts 2,193 1,464 Deferred income tax provision (204) -- Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (37,259) (27,654) Inventories (32,226) (20,879) Accounts payable and accrued liabilities 18,551 9,141 Other, net (2,670) (4,773) --------- --------- Net cash used in operating activities of continuing operations (24,066) (24,702) --------- --------- Cash flows from investing activities: Business acquisitions, net of cash acquired (22,881) (116,785) Capital expenditures, net (8,397) (4,662) Purchases of marketable securities (735) (257) --------- --------- Net cash used in investing activities of continuing operations (32,013) (121,704) --------- --------- Cash flows from financing activities: Net borrowings under revolving credit agreement 66,000 87,900 Net repayments of bank and other debt (6,323) (12,098) Net proceeds from issuances of common stock 2,619 86,709 Common stock dividends (1,862) (1,688) Other -- (97) --------- --------- Net cash provided by financing activities of continuing operations 60,434 160,726 --------- --------- Net cash used in discontinued operations (3,785) (2,316) --------- --------- Net increase in cash and cash equivalents 570 12,004 Cash and cash equivalents at beginning of period 7,880 2,882 --------- --------- Cash and cash equivalents at end of period $ 8,450 $ 14,886 ========= =========
See accompanying notes to condensed consolidated financial statements. 4 of 12 WATSCO, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (In thousands, except share data) (Unaudited) 1. The condensed consolidated balance sheet as of December 31, 1997, which has been derived from the Company's audited financial statements, and the unaudited interim condensed consolidated financial statements, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments necessary for a fair presentation have been included in the condensed consolidated financial statements herein. 2. The results of operations for the quarter and nine month period ended September 30, 1998 are not necessarily indicative of the results for the year ending December 31, 1998. The sale of the Company's products is seasonal with revenue generally increasing during the months of May through August. 3. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 4. Basic earnings per share is computed by dividing net income, less subsidiary preferred stock dividends, by the total of the weighted average number of shares outstanding. Subsidiary preferred stock dividends were $33 and $97 for the quarter and nine months ended September 30, 1997, respectively. Diluted earnings per share additionally assumes any added dilution from common stock equivalents. Shares used to calculate earnings per share are as follows:
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- ----------------------- 1998 1997 1998 1997 -------- --------- ---------- -------- Weighted average shares outstanding 27,872,756 25,929,176 26,934,811 24,894,560 Dilutive stock options 1,620,458 1,704,766 1,633,080 1,704,766 ----------- ---------- ---------- ---------- Shares for diluted earnings per share 29,493,214 27,633,942 28,567,891 26,599,326 ========== ========== ========== ========== Options outstanding which are not included in the calculation of diluted earnings per share because their impact is antidilutive 233,626 -- 214,126 -- ========== ========== ========== ==========
Weighted average common shares outstanding have been restated to include the effect of a 3-for-2 stock split paid on August 14, 1998. 5. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," effective January 1, 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in financial statements. The components of the Company's comprehensive income are as follows:
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Net income $ 11,116 $ 6,988 $ 21,023 $ 15,633 Unrealized loss on investments, net of tax (3,692) -- (2,813) -- -------- -------- -------- -------- Comprehensive income $ 7,424 $ 6,988 $ 18,210 $ 15,633 ======== ======== ======== ========
5 of 12 6. Discontinued operations include a personnel staffing business, Dunhill Staffing Systems, Inc., and, until May 1998, a manufacturing operation, Watsco Components, Inc. ("Components"). In May 1998, the Company sold substantially all the operating assets of Components to International Comfort Products Corporation. Summarized results for the discontinued operations are as follows:
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ------------------- 1998 1997 1998 1997 --------- -------- -------- ------- Revenue: Personnel staffing $ 13,982 $ 11,535 $ 37,643 $ 32,322 Manufacturing -- 5,585 8,861 17,509 -------- -------- -------- -------- $ 13,982 $ 17,120 $ 46,504 $ 49,831 ======== ======== ======== ======== Income (loss) before income taxes: Personnel staffing $ 474 $ 472 $ 1,239 $ 1,080 Manufacturing (43) (244) (1,270) 118 -------- -------- -------- -------- 431 228 (31) 1,198 Income tax expense (benefit) 160 88 (11) 461 -------- -------- -------- -------- Income (loss) from discontinued operations $ 271 $ 140 $ (20) $ 737 ======== ======== ======== ========
Income (loss) before income taxes includes allocated interest expense of $128 and $96 and $376 and $263 for the quarter and nine months ended September 30, 1998 and 1997, respectively. Interest expense was allocated to the discontinued operations based on a ratio of net assets of the discontinued operations to the total Company's consolidated net assets. 7. In July 1998, the Company completed the acquisition of the common stock of Kaufman Supply, Inc. ("Kaufman"), a wholesale distributor of air conditioning and other products to the manufactured housing industry, and in August 1998, completed the acquisition of the common stock of SPS Supply, Inc., a wholesale distributor of air conditioning, heating and refrigeration products. Aggregate consideration for these acquisitions consisted of cash payments of $16,718, debt assumption of $5,253 and the issuance of 920,042 shares of Common Stock having a fair value of $16,520. These transactions are subject to adjustment upon the completion of audits of the assets purchased and the liabilities assumed. The acquisitions have been accounted for under the purchase method of accounting and, accordingly, their results of operations have been included in the unaudited condensed consolidated statements of income beginning on their respective dates of acquisition. The excess of the aggregate purchase prices over the net assets acquired is being amortized on a straight-line basis over 40 years. The Company's unaudited pro forma consolidated results of operations, assuming all significant acquisitions occurred on January 1, 1997, are as follows:
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 1998 1997 1998 1997 ------- ------- -------- -------- Revenue $317,028 $281,295 $822,245 $734,619 Income from continuing operations $ 10,845 $ 9,528 $ 21,306 $ 18,431 Diluted earnings per share from continuing operations $ 0.37 $ 0.33 $ 0.73 $ 0.64
The unaudited pro forma consolidated results of operations is not necessarily indicative of either the results of operations that would have occurred had the above companies been acquired on January 1, 1997 for the years presented or of future results of operations. 6 of 12 8. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Company has not yet determined the timing of or method of adoption of SFAS No. 133 and believes that the adoption of this statement will not be material to the Company's consolidated financial position or results of operations. 7 of 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table presents the Company's consolidated financial statements from continuing operations for the quarter and nine months ended September 30, 1998 and 1997, expressed as a percent of revenue:
QUARTER NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- 1998 1997 1998 1997 -------- ------- -------- ------- Revenue 100.0% 100.0% 100.0% 100.0% Cost of sales 77.4 78.1 77.4 77.9 -------- ------- -------- ------- Gross profit 22.6 21.9 22.6 22.1 Selling, general and administrative expenses 16.1 15.7 17.1 16.3 -------- ------- -------- ------- Operating income 6.5 6.2 5.5 5.8 Interest expense, net 1.0 .4 1.0 .4 Income taxes 2.1 2.2 1.7 2.1 -------- ------- -------- ------- Income from continuing operations 3.4% 3.6% 2.8% 3.3% ======== ======= ======== =======
The above table and following narrative includes the results of operations of wholesale distributors of air conditioning, heating and refrigeration equipment and related parts and supplies acquired during 1998 and 1997. These acquisitions were accounted for under the purchase method of accounting and, accordingly, their results of operations have been included in the consolidated results of the Company beginning on their respective dates of acquisition. QUARTER ENDED SEPTEMBER 30, 1998 VS. QUARTER ENDED SEPTEMBER 30, 1997 Revenue for the three months ended September 30, 1998 increased $127.6 million, or 67%, compared to the same period in 1997. Excluding the effect of acquisitions, revenue increased $25.2 million, or 13%. Such increase was primarily due to additional sales generated from market share gains and increased sales generated by expanded product lines of parts and supplies. Gross profit for the three months ended September 30, 1998 increased $30.0 million, or 72%, as compared to the same period in 1997, primarily as a result of the aforementioned revenue increases. Excluding the effect of acquisitions, gross profit increased $6.3 million, or 15%. Gross profit margin in the third quarter increased to 22.6% in 1998 from 21.9% in 1997. Excluding the effect of acquisitions, gross profit margin increased to 22.3% in 1998 from 21.9% in 1997. Selling, general and administrative expenses for the three months ended September 30, 1998 increased $21.3 million, or 72%, compared to the same period in 1997, primarily due to higher selling and delivery costs related to acquired companies and increased sales. Excluding the effect of acquisitions, selling, general and administrative expenses increased $3.2 million, or 11%, primarily due to the aforementioned revenue increases. Selling, general and administrative expenses as a percent of revenue increased to 16.1% in 1998 from 15.7% in 1997, primarily due to the higher cost structures of acquired companies and startup costs related to the opening of new distribution locations. Excluding the effect of acquisitions, selling, general and administrative expenses as a percent of revenue decreased to 15.4% in 1998 from 15.7% in 1997, primarily due to the leveraging of expenses on increased same store sales. 8 of 12 Interest expense, net for the third quarter in 1998 increased approximately $2.5 million, compared to the same period in 1997, primarily due to higher average borrowings used to complete business acquisitions. The effective tax rate for the three months ended September 30, 1998 was 37.0% compared to 38.0% for the same period in 1997. This decrease was primarily due to the implementation of certain tax planning strategies. NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. NINE MONTHS ENDED SEPTEMBER 30, 1997 Revenue for the nine months ended September 30, 1998 increased $310.2 million, or 69%, compared to the same period in 1997. Excluding the effect of acquisitions, revenue increased $57.8 million, or 13%. Such increase was primarily due to additional sales generated from market share gains and increased sales generated by expanded product lines of parts and supplies. Gross profit for the nine months ended September 30, 1998 increased $72.5 million, or 73%, as compared to the same period in 1997, primarily as a result of the aforementioned revenue increases. Excluding the effect of acquisitions, gross profit increased $13.4 million, or 14%. Gross profit margin for the nine month period increased to 22.6% in 1998 from 22.1% in 1997. Excluding the effect of acquisitions, gross profit margin increased to 22.2% in 1998 from 22.1% in 1997. Selling, general and administrative expenses for the nine months ended September 30, 1998 increased $56.7 million, or 77%, compared to the same period in 1997, primarily due to higher selling and delivery costs related to acquired companies and increased sales. Excluding the effect of acquisitions, selling, general and administrative expenses increased $8.2 million, or 11%, primarily due to the aforementioned revenue increases. Selling, general and administrative expenses as a percent of revenue increased to 17.1% in 1998 from 16.3% in 1997, primarily due to the higher cost structures of acquired companies and startup costs related to the opening of new distribution locations. Excluding the effect of acquisitions, selling, general and administrative expenses as a percent of revenue decreased to 16.1% in 1998 from 16.3% in 1997, primarily due to the leveraging of expenses on increased same store sales. Interest expense, net for the nine months ended September 30, 1998 increased approximately $5.9 million, compared to the same period in 1997, primarily due to higher average borrowings used to complete business acquisitions. The effective tax rate for the nine months ended September 30, 1998 was 37.0% compared to 38.5% for the same period in 1997. This decrease was primarily due to the implementation of certain tax planning strategies. LIQUIDITY AND CAPITAL RESOURCES The Company maintains a bank-syndicated revolving credit agreement that provides for borrowings of up to $260 million, expiring on August 8, 2002. Borrowings under the unsecured agreement are used to fund seasonal working capital needs and for other general corporate purposes, including acquisitions. Borrowings under the agreement, which totaled $200.7 million at September 30, 1998, bear interest at primarily LIBOR-based rates plus a spread that is dependent upon the Company's financial performance (LIBOR plus .6% at September 30, 1998). The agreement contains financial covenants with respect to the Company's consolidated net worth, interest and debt coverage ratios and limits capital expenditures and dividends in addition to other restrictions. 9 of 12 At September 30, 1998, the Company had various interest rate swap agreements with an aggregate notional amount of $100 million to manage its net exposure to interest rate changes related to a portion of the borrowings under the revolving credit agreement. The interest rate swap agreements effectively convert a portion of the Company's LIBOR-based variable rate borrowings into fixed rate borrowings. The Company continuously monitors developments in the capital markets and only enters into swap transactions with established counterparties having investment-grade ratings. Working capital increased to $316.0 million at September 30, 1998 from $257.8 million at December 31, 1997. This increase was funded primarily by borrowings under the Company's revolving credit agreement. Cash and cash equivalents increased $.6 million during the nine month period ended September 30, 1998. Principal sources of cash were borrowings under the revolving credit agreement and profitable operations. The principal uses of cash were to fund working capital needs, including the addition of inventory to expand the product offerings of both existing and newly acquired locations, and finance acquisitions and capital expenditures. The Company has adequate availability of capital from operations and its revolving credit agreement to fund present operations and anticipated growth, including expansion in its current and targeted market areas. The Company continually evaluates potential acquisitions and has held discussions with a number of acquisition candidates; however, the Company currently has no binding agreement with respect to any acquisition candidates. Should suitable acquisition opportunities or working capital needs arise that would require additional financing, the Company believes that its financial position and earnings history provide a solid base for obtaining additional financing resources at competitive rates and terms. YEAR 2000 ISSUE Many computer systems in use today may be unable to correctly process data or may not operate at all after December 31, 1999 because those systems recognize the year within a date only by the last two digits. Some computer programs may interpret the year "00" as 1900, instead of as 2000, causing errors in calculations, or the value "00" may be considered invalid by the computer program causing the system to fail. The Year 2000 issue affects: (1) information technology utilized by the Company, (2) other systems utilized by the Company, such as communications, facilities management and service equipment containing embedded computer chips and (3) systems of key customers, suppliers and other business partners. The Company's activities to manage the Year 2000 issue include (a) identifying the systems that are non-compliant, (b) formulating strategies to remedy the problems, (c) making the changes necessary through purchasing new or modifying existing systems and (d) testing the changes. The identification and formulation stages have been performed by the Company and each of its subsidiaries and are nearly complete. The implementation of changes, the validation testing of such changes and an assessment of Year 2000 exposures as they may relate to the Company's key customers, suppliers or other business partners are expected to be conducted over the remainder of 1998 and throughout 1999. Based on the Company's assessment to date, management does not expect the implementation costs related to the Year 2000 issues to have a material adverse impact on the Company's financial position, results of operations or cash flows; however, this estimate could change as the Company's activities to address the Year 2000 issue progresses. While management believes that it has undertaken reasonable steps to address the Year 2000 issue, there can be no assurance that a failure to convert the Company's systems or the inability of its key suppliers, customers or other business partners to adequately address the Year 2000 issue would not have a material adverse impact on the Company. SAFE HARBOR STATEMENT This quarterly report contains statements which, to the extent they are not historical fact, constitute "forward looking statements" under the securities laws. All forward looking statements involve risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from those contemplated or projected, forecasted, estimated, budgeted, expressed or implied by or in such forward looking statements. The forward looking statements in this document are intended to be subject to the safe harbor protection provided under the securities laws. For additional information identifying some other important factors which may affect the Company's operations and markets and could cause actual results to vary materially from those anticipated in the forward looking statements, see the Company's Securities and Exchange Commission filings, including but not limited to, the discussion included in the Business section of the Company's Form 10-K under the heading "Other Information". 10 of 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings There have been no significant changes from the information reported in the Annual Report on Form 10-K for the period ended December 31, 1997, filed on March 31, 1998. Item 2. Changes in the Rights of the Company's Security Holders In July and August 1998, the Company issued 920,042 shares of Common Stock as partial consideration for acquisitions made by the Company. See Note 7 of the Notes to Condensed Consolidated Financial Statements. The shares were issued pursuant to an exemption set forth under Section 4(2) of the Securities Act of 1933, as amended. Item 3. Defaults by the Company on its Senior Securities None Item 4. Results of Votes of Securities Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.17 Exhibit A-1 to Employment Agreement and Incentive Plan dated January 31, 1996 by and between Watsco, Inc. and Albert H. Nahmad 27. Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K None 11 of 12 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. --------------------------------- (Registrant) By: /s/ Barry S. Logan --------------------------------- Barry S. Logan Vice President and Secretary (Chief Financial Officer) November 13, 1998 12 of 12 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------ ----------- 10.17 Exhibit A-1 to Employment Agreement and Incentive Plan dated January 31, 1996 by and between Watsco, Inc. and Albert H. Nahmad 27 Financial Data Schedule
                                                                   EXHIBIT 10.17

                                   EXHIBIT A-1

         1998 Performance Goals and Performance Based Compensation

I.       Formula

                                                               PERFORMANCE
                                                                  BASED
    A.   EARNING PER SHARE                                 COMPENSATION FORMULA
         For each $.01 increase............................      $43,500

B.       INCREASE IN COMMON STOCK PRICE
         For each $.0625 increase in per share
         price of a share of Common Stock  
         from $28.875 per share............................      $ 4,225

II.      Method of Payment

         A.  CASH. The Performance Board Compensation determined for 1998 under
             the formula set forth in Section I above shall be paid in cash if
             and to the extent such Compensation does not exceed $1,250,000.

         B.  RESTRICTED STOCK. If the Performance Based Compensation determined
             for 1998 under the formula set forth in Section I above exceeds
             $1,250,000 (such excess amount being referred to as the "Additional
             Amount"), the Executive shall be granted a number of shares of
             restricted Class B Common Stock of the Company (the "Shares") equal
             to the amount determined by dividing (i) two times the Additional
             Amount, by (ii) closing price for the Class B Common Stock of the
             Company on the American Stock Exchange as of the close of trading
             on December 31, 1998. The value of any fractional shares shall be
             paid in cash. The restrictions on the Shares shall lapse on the
             first to occur of (i) October 15, 2014, (ii) termination of the
             Executive's employment with the Company by reason of Executive's
             disability or death, (iii) the Executive's termination of
             employment with the Company for Good Reason; (iv) the Company's
             termination of Executive's employment without Cause, or (v) the
             occurrence of a Change in Control of the Company ("Good Reason",
             "Cause", and "Change in Control" to be defined in a manner
             consistent with the most recent grant of Restricted Stock by the
             Company to the Executive).



Dated:       March 23, 1998                         /s/ Paul Manley
                                                 ---------------------
                                                 Paul Manley, Chairman 
                                                 Compensation Committee
 


5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WATSCO, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 1,000 9-MOS DEC-31-1997 SEP-30-1998 8,450 13,060 163,384 6,678 223,532 412,455 54,762 23,887 573,185 96,479 204,897 13,953 0 0 254,976 573,185 760,597 760,597 588,688 588,688 127,998 2,193 7,685 34,033 12,592 21,441 (418) 0 0 21,023 0.78 0.74