-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MN3UTL29PVLru0UyxnRTsfjbLDyadnKPsQYu8iZWx04fCWNUK0E54Y/75ZlUWv9I Z0g4gjLEdx2YO0DHfGUl2A== 0000950170-97-000611.txt : 19970520 0000950170-97-000611.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950170-97-000611 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: AMEX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WATSCO INC CENTRAL INDEX KEY: 0000105016 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 590778222 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05581 FILM NUMBER: 97609496 BUSINESS ADDRESS: STREET 1: 2665 S BAYSHORE DR STREET 2: STE 901 CITY: MIAMI STATE: FL ZIP: 33133 BUSINESS PHONE: 3058580828 MAIL ADDRESS: STREET 1: 2665 SOUTH BAYSHORE DR, STE 901 CITY: MIAMI STATE: FL ZIP: 33133 10-Q 1 ================================================================================ 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 MARCH 31, 1997 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: 15,028,600 shares of the Company's Common Stock ($.50 par value) and 2,179,847 shares of the Company's Class B Common Stock ($.50 par value) were outstanding as of May 13, 1997. PART I. FINANCIAL INFORMATION WATSCO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31, DECEMBER 31, 1997 1996 -------- ----------- ASSETS (UNAUDITED) Current assets: Cash and cash equivalents $ 3,936 $ 5,020 Marketable securities 1,124 334 Accounts receivable, net 81,227 59,523 Inventories 133,808 87,637 Other current assets 7,588 6,502 -------- -------- Total current assets 227,683 159,016 Property, plant and equipment, net 19,081 16,174 Intangible assets, net 35,512 23,596 Other assets 5,974 4,795 -------- -------- $288,250 $203,581 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations $ 942 $ 794 Accounts payable 33,650 17,343 Accrued liabilities 9,969 10,884 -------- -------- Total current liabilities 44,561 29,021 Long-term obligations: Borrowings under revolving credit agreement 26,100 48,000 Bank and other debt 5,417 3,027 -------- -------- 31,517 51,027 -------- -------- Deferred income taxes 911 911 Deferred credits 2,439 693 Preferred stock of subsidiary 2,000 2,000 Shareholders' equity: Common Stock, $.50 par value 7,491 5,927 Class B Common Stock, $.50 par value 1,107 1,089 Paid-in capital 155,681 72,129 Retained earnings 42,543 40,784 -------- -------- Total shareholders' equity 206,822 119,929 -------- -------- $288,250 $203,581 ======== ======== See accompanying notes to condensed consolidated financial statements. 2
WATSCO, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS THREE MONTHS ENDED MARCH 31, 1997 and 1996 (In thousands, except per share data) (Unaudited) 1997 1996 --------- --------- Revenues: Net sales $ 101,745 $ 70,675 Royalty and service fees 9,567 7,114 --------- --------- Total revenues 111,312 77,789 --------- --------- Costs and expenses: Cost of sales 77,851 54,671 Direct service expenses 7,435 5,483 Selling, general and administrative 21,750 14,366 --------- --------- Total costs and expenses 107,036 74,520 --------- --------- Operating income 4,276 3,269 Other income, net 213 69 Interest expense (778) (1,045) --------- --------- Income before income taxes and minority interests 3,711 2,293 Income taxes (1,429) (871) Minority interests -- (116) --------- --------- Net income 2,282 1,306 Retained earnings at beginning of period 40,784 31,136 Common stock cash dividends (491) (315) Dividends on preferred stock of subsidiary (32) (32) --------- --------- Retained earnings at end of period $ 42,543 $ 32,095 ========= ========= Earnings per share: Primary $ .14 $ .11 ========= ========= Fully diluted $ .14 $ .11 ========= ========= Weighted average shares and equivalent shares used to calculate (1): Primary earnings per share 16,400 11,101 ========= ========= Fully diluted earnings per share 16,400 11,553 ========= =========
(1) Weighted average common shares used in the calculation of earnings per share for the quarter ended March 31, 1996 have been restated to reflect a 3-for-2 stock split paid on June 14, 1996. See accompanying notes to condensed consolidated financial statements. 3
WATSCO, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (In thousands) (Unaudited) 1997 1996 -------- -------- Cash flows from operating activities: Net income $ 2,282 $ 1,306 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,264 799 Provision for doubtful accounts 149 220 Minority interests, net of dividends paid -- 116 Change in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (3,504) (2,309) Inventories (13,678) (10,895) Accounts payable and accrued liabilities 3,885 (359) Other, net (2,127) (435) -------- -------- Net cash used in operating activities (11,729) (11,557) -------- -------- Cash flows from investing activities: Capital expenditures, net (2,167) (1,142) Business acquisitions, net of cash acquired (48,891) -- Net sales (purchases) of marketable securities (712) 267 -------- -------- Net cash used in investing activities (51,770) (875) -------- -------- Cash flows from financing activities: Net borrowings (repayments) under revolving credit agreements (21,900) 13,904 Net repayments of short-term promissory notes -- (1,500) Net repayments of long-term obligations (335) (33) Net proceeds from issuances of common stock 85,173 33,938 Cash dividends (491) (315) Other (32) (32) -------- -------- Net cash provided by financing activities 62,415 45,962 -------- -------- Net increase (decrease) in cash and cash equivalents (1,084) 33,530 Cash and cash equivalents at beginning of period 5,020 3,751 -------- -------- Cash and cash equivalents at end of period $ 3,936 $ 37,281 ======== ======== Supplemental cash flow information: Interest paid $ 772 $ 980 ======== ======== Income taxes paid $ 610 $ 58 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 WATSCO, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 1. The condensed consolidated balance sheet as of December 31, 1996, which has been derived from 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 ended March 31, 1997 are not necessarily indicative of the results for the year ending December 31, 1997. The sale of the Company's products and services is seasonal with revenues generally increasing during the months of May through August. 3. At March 31, 1997 and December 31, 1996, inventories consist of (in thousands): MARCH 31, DECEMBER 31, 1997 1996 -------- ------------ Raw materials $ 5,158 $ 4,208 Work in process 1,512 1,502 Finished goods 127,138 81,927 -------- -------- $133,808 $ 87,637 ======== ======== 4. In January 1997, the Company completed the acquisition of the common stock of Coastline Distribution, Inc. ("Coastline") and the purchase of substantially all of the operating assets of four branch operations from Inter-City Products Corporation (USA). Coastline and the branches operate as wholesale distributors of residential air conditioning and heating products in Florida, Georgia, southern Alabama, North Carolina, South Carolina, southern California, northern Virginia and Maryland. In March 1997, the Company completed the purchase of substantially all of the operating assets and assumption of certain liabilities of Carrier Corporation's Comfort Products Distributing ("Comfort Products") and Central Plains Distributing ("Central Plains") distribution operations. Comfort Products and Central Plains sell heating and air conditioning products from eight branches serving markets in Missouri, Kansas, Nebraska, Iowa, North Dakota and South Dakota. Cash consideration paid by the Company for these acquisitions totaled approximately $48.9 million and is subject to adjustment upon the completion of an audit of the assets purchased and the liabilities assumed. These acquisitions were accounted for under the purchase method of accounting and, accordingly, their results of operations have been included in the condensed consolidated statement of income beginning on their respective dates of acquisition. The excess of the aggregate purchase prices over the net assets acquired of approximately $11.9 million is being amortized on a straight-line basis over 40 years. In connection with these acquisitions, the Company assumed liabilities of approximately $15.1 million. 5. In February 1997, the Company completed the sale of 3,000,000 shares of Common Stock in a public offering resulting in net proceeds of approximately $85.2 million, a significant portion of which was used to repay borrowings under its revolving credit agreement. In March 1997, the Company used a portion of the proceeds to fund the acquisition of Carrier Corporation's Comfort Products and Central Plains distribution operations discussed above. The Company intends to use the remaining net proceeds for general corporate purposes including potential acquisitions. 5 6. In April 1997, the Company announced that it (or its subsidiaries) had signed letters of intent to acquire the net assets and businesses of four wholesale distributors of air conditioning, heating and refrigeration equipment and related parts and supplies. The businesses to be acquired have aggregate annual revenues of approximately $57 million, collectively operate 30 branches and serve markets in Texas, California, North Carolina, Tennessee, Louisiana, Nevada, and Oklahoma. The transactions are subject to the execution of definitive agreements and other conditions. 7. Certain amounts for 1996 have been reclassified to conform with the 1997 presentation. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 1997 VS. QUARTER ENDED MARCH 31, 1996 RESULTS OF OPERATIONS The following table presents certain items of the Company's consolidated financial statements for the three months ended March 31, 1997 and 1996, expressed as a percentage of revenues: 1997 1996 ------ ------- Revenues 100.0% 100.0% Cost of sales and direct service expenses (76.6) (77.3) ------ ------- Gross profit 23.4 22.7 Selling, general and administrative expenses (19.5) (18.5) ------ ------- Operating income 3.9 4.2 Other income, net .2 - Interest expense (.7) (1.3) Income taxes (1.3) (1.1) Minority interests - (.1) ------ ------- Net income 2.1% 1.7% ====== ======= The above table and following narrative includes the results of operations of companies acquired during 1997 and 1996 as follows: Three States Supply Company, Inc., acquired in April 1996; Serviceman Supplies, Inc., acquired in October 1996; Coastal Supply Company, Inc., acquired in December 1996; Coastline Distribution, Inc. and four branch operations, acquired in January 1997; and Comfort Products Distributing, Inc. and Central Plains Distributing, Inc., acquired in March 1997 (collectively, the "acquisitions"). 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. Revenues for the three months ended March 31, 1997 increased $33.5 million, or 43%, compared to the same period in 1996. In the climate control segment, revenues increased $31.1 million, or 44%. Excluding the effect of acquisitions, revenues for the climate control segment increased $1.8 million, or 3%. Such increase was primarily due to greater sales of parts and supplies resulting from expanded product lines. Gross profit for the three months ended March 31, 1997 increased $8.4 million, or 48%, as compared to the same period in 1996. Excluding the effect of acquisitions, gross profit increased $1.2 million, or 7%, primarily as a result of the aforementioned revenue increase and improvement in gross profit margins. Gross profit margin in the first quarter increased to 23.4% in 1997 from 22.7% in 1996. Excluding the effect of acquisitions, gross profit margin increased to 23.3% in 1997 from 22.7% in 1996. These increases were primarily due to certain vendor price increases during 1995 which the Company did not begin passing on to customers until the second quarter of 1996 and the effect of new vendor procurement programs benefiting the Company with lower purchase costs for certain parts and supplies in 1997. Selling, general and administrative expenses for the three months ended March 31, 1997 increased $7.3 million, or 51%, compared to the same period in 1996, primarily due to selling and delivery costs related to increased sales. Excluding the effect of acquisitions, selling, general and administrative expenses increased $1.3 million, or 9%, primarily due to revenue increases. Selling, general and administrative expenses as a percent of revenues increased to 19.5% in 1997 from 18.5% in 1996, primarily due to higher cost structures of acquired companies and startup costs related to the opening of new distribution branches. Excluding the effect of acquisitions, selling, general and administrative expenses as a percent of revenues increased to 19.3% in 1997 from 18.5% in 1996, primarily due to relatively higher cost structures of new distribution branches. 7 Interest expense for the first quarter in 1997 decreased approximately $267,000, or 26%, compared to the same period in 1996 and, excluding the effect of acquisitions, interest expense decreased $737,000, or 71%, primarily due to lower average borrowings. In March 1996, the Company acquired the minority interests in certain of its distribution subsidiaries. Therefore, there was no minority interest expense in the first quarter of 1997. The effective tax rate for the three months ended March 31, 1997 was 38.5% compared to 38.0% for the same period in 1996. This increase was due to a greater percentage of income earned in states having higher tax rates in 1997 as compared to 1996. LIQUIDITY AND CAPITAL RESOURCES The Company has adequate availability of capital from operations and its revolving credit agreement to fund present operations and anticipated growth, including expansion in the Company's current and targeted market areas. At March 31, 1997, borrowings under the revolving credit agreement totaled $26.1 million and bear interest at primarily LIBOR-based rates plus a spread that is dependent upon the Company's financial performance (LIBOR plus 3/8% at March 31, 1997). The revolving credit 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. 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. Working capital increased to $183.1 million at March 31, 1997 from $130.0 million at December 31, 1996. This increase is primarily due to the receipt of net proceeds of approximately $85.2 million from the sale of 3,000,000 shares of the Company's Common Stock in February 1997. In March 1997, the Company used the net proceeds to pay down its revolving credit agreement and to fund the acquisitions of Comfort Products and Central Plains. Cash and cash equivalents decreased $1.1 million during the first quarter of 1997. Principal sources of cash during the quarter were net proceeds from the issuance of common stock, borrowings under the revolving credit agreements and profitable operations. The principal uses of cash were to fund working capital needs, finance business acquisitions and repay long-term obligations. Inventory purchases are substantially funded by borrowings under a revolving credit agreement. 8 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, 1996, filed on March 31, 1997. Item 2. Changes in the Rights of the Company's Security Holders None 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 11. Computation of Earnings Per Share for the Quarters Ended March 31, 1997 and 1996. 27. Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K None 9 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/ RONALD P. NEWMAN ------------------------------ Ronald P. Newman Vice President and Secretary (Chief Financial Officer) May 14, 1997 10 EXHIBIT PAGE - ------- ---- 11 Computation of Earnings Per Share 12 27 Financial Data Schedule 13 11 EX-11 2 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE QUARTERS ENDED MARCH 31, 1997 AND 1996 (In thousands, except per share data) 1997 1996(1) -------- -------- Net income $ 2,282 $ 1,306 Less subsidiary preferred stock dividend (32) (32) -------- -------- Income applicable to common stock for primary earnings per share 2,250 1,274 Add interest expense, net of income tax effects, attributable to convertible debentures -- 25 -------- -------- Income applicable to common stock for fully diluted earnings per share $ 2,250 $ 1,299 ======== ======== Weighted average common shares outstanding 15,298 10,368 Additional shares assuming exercise of stock options and warrants 1,102 733 -------- -------- Shares used for primary earnings per share 16,400 11,101 Additional shares assuming exercise of stock options and warrants -- 117 Conversion of 10% Convertible Subordinated Debentures due 1996 -- 335 -------- -------- Shares used for fully diluted earnings per share 16,400 11,553 ======== ======== Earnings per share: Primary $ .14 $ .11 ======== ======== Fully diluted $ .14 $ .11 ======== ======== - --------------- (1) Weighted average common shares outstanding have been restated to include the effect of a 3-for-2 stock split paid on June 14, 1996. 12 EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WATSCO, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1997 3,936 1,124 86,147 4,920 133,808 227,683 36,107 17,026 288,250 44,561 31,517 0 0 8,598 198,224 288,250 101,745 111,312 77,851 85,286 21,601 149 778 3,711 1,429 2,282 0 0 0 2,282 0.14 0.14
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