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 JUNE 30, 1995
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
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 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: 4,693,937
shares of the Company's Common Stock ($.50 par value) and 1,463,030
shares of the Company's Class B Common Stock ($.50 par value) were
outstanding as of August 8, 1995.
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
WATSCO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1995 and December 31, 1994
(In $000s)
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,218 $ 1,744
Marketable securities 1,281 3,227
Accounts receivable, net 48,012 34,811
Inventories 68,471 49,259
Other current assets 5,555 4,608
-------- --------
Total current assets 125,537 93,649
Property, plant and equipment, net 9,902 8,829
Intangible assets, net 14,433 13,164
Other assets 4,538 4,022
-------- --------
$154,410 $119,664
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 1,809 $ 1,781
Borrowings under revolving credit agreements 55,571 32,034
Accounts payable 20,910 13,108
Accrued liabilities 7,027 6,631
-------- --------
Total current liabilities 85,317 53,554
Long-term obligations:
Bank and other debt 3,133 2,719
Subordinated notes 2,500 2,500
Convertible subordinated debentures 1,505 1,505
-------- --------
7,138 6,724
Deferred income taxes 638 713
Minority interests 11,884 11,857
Shareholders' equity:
Common Stock, $.50 par value 2,345 2,334
Class B Common Stock, $.50 par value 733 743
Paid-in capital 18,954 18,936
Retained earnings 27,401 24,803
-------- --------
Total shareholders' equity 49,433 46,816
-------- --------
$154,410 $119,664
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
WATSCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Quarter and Six Months Ended
June 30, 1995 and 1994
(In $000s except per share amounts)
(Unaudited)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- --------------------
1995 1994 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net sales $83,023 $68,448 $136,217 $117,173
Royalty and service fees 8,039 7,379 15,166 13,906
------- ------- -------- --------
Total revenues 91,062 75,827 151,383 131,079
------- ------- -------- --------
Costs and expenses:
Cost of sales 64,773 53,497 104,876 90,578
Direct service expenses 6,145 5,613 11,628 10,566
Selling, general and administrative 14,275 12,170 26,372 23,342
------- ------- -------- --------
Total costs and expenses 85,193 71,280 142,876 124,486
------- ------- -------- --------
Operating income 5,869 4,547 8,507 6,593
Interest expense, net (1,075) (782) (1,923) (1,422)
------- ------- -------- --------
Income before income taxes and minority interests 4,794 3,765 6,584 5,171
Income taxes (1,842) (1,409) (2,534) (1,942)
Minority interests (651) (430) (848) (613)
------- ------- -------- --------
Net income 2,301 1,926 3,202 2,616
Retained earnings at beginning of period 25,405 20,622 24,803 20,208
Cash dividends (273) (262) (540) (506)
Dividends on preferred stock of subsidiary (32) (32) (64) (64)
------- ------- -------- --------
Retained earnings at end of period $27,401 $22,254 $ 27,401 $ 22,254
======= ======= ======== ========
Earnings per share:
Primary $.35 $.30 $.48 $.41
==== ==== ==== ====
Fully diluted $.34 $.29 $.47 $.39
==== ==== ==== ====
Weighted average shares and
equivalent shares used to calculate:
Primary earnings per share 6,537 6,339 6,478 6,289
===== ===== ===== =====
Fully diluted earnings per share 6,817 6,624 6,815 6,623
===== ===== ===== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
WATSCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1995 and 1994
(In $000s)
(Unaudited)
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,202 $ 2,616
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 1,316 1,074
Deferred income tax credit (75) (95)
Minority interests, net of dividends paid 30 (119)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (9,329) (8,582)
Inventories (12,945) (8,496)
Accounts payable and accrued liabilities 6,460 4,380
Other, net (1,029) 162
-------- --------
Net cash used in operating activities (12,370) (9,060)
-------- --------
Cash flows from investing activities:
Capital expenditures, net (1,898) (1,051)
Marketable securities transactions, net 1,938 (913)
Cash used in acquisitions, net of cash acquired (8,175) -
-------- --------
Net cash used in investing activities (8,135) (1,964)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving credit agreements 23,537 12,080
Repayments of long-term obligations (1,973) (555)
Cash dividends (540) (506)
Other (45) (39)
-------- --------
Net cash provided by financing activities 20,979 10,980
-------- --------
Net increase (decrease) in cash and cash equivalents 474 (44)
Cash and cash equivalents at beginning of period 1,744 1,093
-------- --------
Cash and cash equivalents at end of period $ 2,218 $ 1,049
======== ========
Supplemental cash flow information:
Interest paid $ 1,857 $ 1,701
======== ========
Income taxes paid $ 2,291 $ 1,394
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
WATSCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
1. The condensed consolidated balance sheet as of December 31, 1994, 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 and six month period ended June
30, 1995 are not necessarily indicative of the results for the year ending
December 31, 1995. The sale of the Company's products and services is
seasonal with revenues generally increasing during the months of May
through August.
3. At June 30, 1995 and December 31, 1994, inventories consisted of (in
thousands):
JUNE 30, DECEMBER 31,
1995 1994
------- ------------
Raw materials $ 4,874 $ 4,058
Work in process 1,274 1,152
Finished goods 62,323 44,049
------- -------
$68,471 $49,259
======= =======
4. On May 15, 1995, the Company effected a three-for-two stock split in the
form of a 50% stock dividend for both classes of the Company's common stock
for shareholders of record as of April 28, 1995. Shareholders' equity has
been restated to give retroactive recognition to the stock split for all
periods presented by reclassifying from retained earnings to common stock
the par value of the additional shares arising from the split. All share
and per share amounts have been restated to reflect the stock split.
5. On June 2, 1995, Comfort Supply, Inc., the Company's Houston-based
distribution subsidiary, purchased certain accounts receivable, inventory
and other operating assets and assumed certain liabilities of Environmental
Equipment & Supplies, Inc. ("Environmental"), a wholesale distributor of
residential air conditioners and related parts and supplies based in North
Little Rock, Arkansas.
The acquisition was accounted for under the purchase method of accounting.
The excess of the purchase price over the fair value of the net assets
acquired of $30,000 is being amortized on a straight-line basis over 40
years. In connection with the acquisition, the Company assumed liabilities
of $2,163,000.
6. In July 1995, the Company's Amended and Restated Articles of Incorporation
were amended to increase the number of authorized shares of Common Stock,
par value $.50 per share, from 10,000,000 to 40,000,000.
7. Certain amounts for 1994 have been reclassified to conform with the 1995
presentation.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents certain items of the Company's consolidated
financial statements for the quarter and six months ended June 30, 1995 and 1994
expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- ------------------
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales and direct service expenses (77.9) (78.0) (77.0) (77.2)
----- ----- ----- -----
Gross profit 22.1 22.0 23.0 22.8
Selling, general and administrative expenses (15.7) (16.0) (17.4) (17.8)
----- ----- ----- -----
Operating income 6.4 6.0 5.6 5.0
Interest expense, net (1.2) (1.0) (1.2) (1.1)
Income taxes (2.0) (1.9) (1.7) (1.4)
Minority interests (.7) (.6) (.6) (.5)
----- ----- ----- -----
Net income 2.5% 2.5% 2.1% 2.0%
===== ===== ===== =====
</TABLE>
The above table and following narrative include, from their respective dates
of acquisition, the results of operations of Airite, Inc. ("Airite"), a
Louisiana-based wholesale distributor of residential central air conditioners
acquired in February 1995; H.B. Adams, Inc. ("H.B. Adams"), a wholesale
distributor of residential air conditioners located in central Florida whose
business and assets the Company purchased in March 1995; and Environmental
Equipment & Supplies, Inc. ("Environmental"), a North Little Rock,
Arkansas-based wholesale distributor of air conditioning and heating equipment
whose business and assets the Company purchased in June 1995.
QUARTER ENDED JUNE 30, 1995 VS. QUARTER ENDED JUNE 30, 1994
Growth in revenue and operating results of the Company's distribution
operations continued at a strong pace during the second quarter with same store
sales achieving 12% growth and recent acquisitions contributing additional sales
growth. This growth in revenues and greater leveraging of operating expenses
resulted in a 41% increase in distribution operating profits for the quarter. In
the Company's manufacturing operations, revenues and operating results were
unfavorably impacted in the second quarter as moderate weather early in the
summer and other factors slowed the pace of customer orders in both the original
equipment manufacturer (OEM) market and aftermarket. In addition, high start-up
costs for new product offerings reduced overall gross profit margins. The
Company has taken appropriate measures in response to the softer market
conditions and is making efforts to further improve the profitability of its new
products. The Company is continuing to aggressively expand into other new
product opportunities, both domestically and internationally, as market
acceptance of the Company's products remains strong. Revenues and operating
results of the Company's personnel services segment continued to grow during the
quarter, although at slower rates than achieved in recent quarters.
Revenues for the three months ended June 30, 1995 increased $15.2 million, or
20%, compared to the same period in 1994. In the climate control segment,
revenues increased $14.6 million, or 21%. Excluding the effect of acquisitions,
revenues for the climate control segment increased $7.1 million,
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<PAGE>
or 10%. Revenues in the Company's Florida distribution market increased $9.9
million, or 37%, primarily from a 15% increase in same store sales and the
acquisition of H.B. Adams. Revenues in the Company's Houston-based distribution
subsidiary, which serves the Texas, Louisiana and Arkansas markets, increased
$2.9 million, or 20%, helped by the acquisitions of Airite and Environmental. On
a same store basis, revenues in the market served by the Houston-based
distribution subsidiary increased 9% due to greater market penetration. Revenues
in the Company's western distribution market rose $2.0 million, or 10%, on
increased sales of replacement air conditioners in California. Revenues in the
Company's manufacturing operations decreased $235,000, or 4%, primarily due to
soft market conditions and other factors. Revenues in the personnel services
segment increased $660,000, or 9%, reflecting continued demand for temporary
help services.
Gross profit for the three months ended June 30, 1995 increased $3.4 million,
or 21%, as compared to the same period in 1994. Excluding the effect of
acquisitions, gross profit increased $1.7 million, or 10%, primarily as a result
of the aforementioned revenue increases. Gross profit margin in the second
quarter, including and excluding the effect of acquisitions, increased to 22.1%
in 1995 from 22.0% in 1994 as increased gross profit margins in the distribution
operations caused by greater sales of higher margin replacement air conditioners
and parts more than offset lower margins in the manufacturing operations caused
by soft market conditions and new product start-up costs.
Selling, general and administrative expenses for the three months ended June
30, 1995 increased $2.1 million, or 17%, compared to the same period in 1994,
primarily due to selling and delivery costs related to increased sales.
Excluding the effect of acquisitions, selling, general and administrative
expenses increased $901,000, or 7%, primarily due to revenue increases. Selling,
general and administrative costs as a percent of revenues decreased from 16.0%
in 1994 to 15.7% in 1995 and, excluding the effect of acquisitions, decreased
from 16.0% in 1994 to 15.6% in 1995. These decreases were the result of a larger
revenue base over which to spread fixed costs .
Interest expense, net for the second quarter in 1995 increased $293,000, or
37%, compared to the same period in 1994, due to higher interest rates and
additional borrowings used to finance acquisitions and increased inventory
levels required by sales growth. Excluding the effect of acquisitions, interest
expense, net increased $151,000, or 19%, primarily due to higher interest rates
and additional borrowings.
The effective tax rate for the three months ended June 30, 1995 was 38.4%
compared to 37.4% for the same period in the 1994. The increase is primarily a
result of a proportionately larger share of taxable income generated in states
with higher tax rates during 1995 as compared to 1994.
SIX MONTHS ENDED JUNE 30, 1995 VS. SIX MONTHS ENDED JUNE 30, 1994
Revenues for the six months ended June 30, 1995 increased $20.3 million, or
16%, compared to the same period in 1994. In the climate control segment,
revenues increased $19.0 million, or 16%. Excluding the effect of acquisitions,
revenues for the climate control segment increased $10.1 million, or 9%.
Revenues in the Company's Florida distribution market increased $12.0 million,
or 27%, primarily due to the acquisition of H.B. Adams, but also due to an 11%
increase in same store sales from increased sales of replacement air
conditioners. Revenues in the market served by the Company's Houston-based
distribution subsidiary increased $4.3 million, or 17%, primarily on a 9%
increase in same store sales due to greater market penetration and further aided
by the acquisitions of Airite and Environmental. Revenues in the Company's
western distribution market rose 7% on increased sales of replacement air
conditioners. Revenues in the Company's manufacturing operations increased
$406,000, or 4%, primarily due to new product offerings to aftermarket
customers. Revenues in the personnel services segment increased $1.3 million, or
9%, reflecting continued demand for temporary help services and greater customer
acceptance of new product offerings such as professional staffing and technical
temporaries.
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<PAGE>
Gross profit for the six months ended June 30, 1995 increased $4.9 million,
or 17%, as compared to the same period in 1994. Excluding the effect of
acquisitions, gross profit increased $2.9 million, or 10%, primarily as a result
of the aforementioned revenue increases but also due to increased gross profit
margins. Gross profit margin for the six month period increased to 23.0% in 1995
from 22.8% in 1994 and, excluding the effect of acquisitions, increased to 23.1%
in 1995 from 22.8% in 1994. These increases are primarily due to a shift in
product mix during the period to replacement sales and increased sales of parts,
which achieve higher margins than equipment sales.
Selling, general and administrative expenses for the six months ended June
30, 1995 increased $3.0 million, or 13%, compared to the same period in 1994,
primarily due to selling and delivery costs related to increased sales.
Excluding the effect of acquisitions, selling, general and administrative
expenses increased $1.6 million, or 7%, primarily due to revenue increases.
Selling, general and administrative expenses as a percent of revenues decreased
from 17.8% in 1994 to 17.4% in 1995 and, excluding the effect of acquisitions,
decreased from 17.8% in 1994 to 17.5% in 1995. These decreases were the result
of a larger revenue base over which to spread fixed costs.
Interest expense, net for the six months ended June 30, 1995 increased
$501,000, or 35%, compared to the same period in 1994, due to higher interest
rates and additional borrowings used to finance acquisitions and increased
inventory levels required by sales growth and stocking requirements in new
branch locations. Excluding the effect of acquisitions, interest expense, net
increased $320,000, or 22%, primarily due to higher interest rates and
additional borrowings.
The effective tax rate for the six months ended June 30, 1995 was 38.5%
compared to 37.6% for the same period in the 1994. The increase is primarily a
result of a proportionately larger share of taxable income generated in states
with higher tax rates during 1995 as compared to 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $2.2 million during the second quarter
of 1995. Principal sources of cash were profitable operations, proceeds from the
sale of marketable securities, primarily consisting of tax exempt municipal
bonds, and increased borrowings under revolving credit agreements. The principal
uses of cash were to fund acquisitions, finance capital expenditures, reduce
long-term obligations and fund working capital needs. Inventory purchases are
substantially funded by borrowings under the subsidiaries' revolving credit
agreements. The increase in inventory in 1995 was higher than 1994 primarily due
to higher levels of inventory carried by the distribution operations necessary
to meet increased demand.
The working capital position of the Company did not change materially from
December 31, 1994. The Company has adequate availability of capital from
operations and revolving credit facilities to fund current operations and
anticipated growth, including expansion in the Company's current and targeted
market areas, through 1995. At June 30, 1995, the Company's distribution
subsidiaries had aggregate borrowing commitments from lenders under existing
revolving credit agreements of $62 million, of which $6 million was unused and
available. Additionally, the Company has $3 million available under an unsecured
revolving credit facility with a bank. Certain of the subsidiaries' revolving
credit agreements contain provisions limiting the payment of dividends to their
shareholders. The Company does not anticipate that these limitations on
dividends will have a material effect on the Company's ability to meet its cash
obligations.
The Company continually evaluates additional acquisitions and other
investment opportunities and its financing needs may change in the future.
Should suitable investment 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.
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<PAGE>
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,
1994, filed on March 28, 1995.
Item 2. Changes in the Rights of the Company's Security Holders
In July 1995, the Company's Amended and Restated Articles of
Incorporation were amended to increase the number of authorized
shares of Common Stock, par value $.50 per share, to 40,000,000.
Item 3. Defaults by the Company on its Senior Securities
None
Item 4. Results of Votes of Securities Holders
(a) The Company's 1995 Annual Meeting of Shareholders was held on
June 5, 1995.
(b) Proxies were solicited by the Company's management
pursuant to Regulation 14 under the Securities Exchange Act of
1934. There was no solicitation in opposition to the
management's nominees as listed in the proxy statement. The
following nominees were elected as indicated in the proxy
statement pursuant to the vote of the shareholders: Mr. James
S. Grien; Mr. David B. Fleeman and Mr. Bob L. Moss. Other
directors whose term of office continued after the meeting are
as follows: Mr. Albert H. Nahmad (chairman), Mr. O.M. Butler,
Mr. D.A. Coape-Arnold, Mr. Paul F. Manley, Mr. Roberto Motta
and Mr. Alan H. Potamkin.
(c) Two additional proposals were voted upon at the Annual Meeting
of Shareholders as follows:
(1) To ratify the action of the Board of Directors amending
the Company's Amended and Restated Articles of Incorporation
to increase the number of authorized shares of Common Stock,
par value $.50 per share, to 40,000,000.
(2) To ratify the reappointment of Arthur Andersen LLP,
the Company's Independent Certified Public Accountants.
The combined vote of the Company's Common Stock and Class B
Common Stock was as follows:
PROPOSAL 1
----------
For 9,764,578
Against 257,907
Abstained 10,625
PROPOSAL 2
----------
For 10,013,533
Against 10,865
Abstained 8,712
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<PAGE>
Item 4. Results of Votes of Securities Holders (continued)
As of April 17, 1995, the record date for the Annual Meeting of
Shareholders, the total number of shares of the Company's Common
Stock, $.50 par value, and Class B Common Stock, $.50 par value,
outstanding was 3,106,712 and 996,185, respectively, representing
13,068,562 combined votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of Watsco, Inc.
11. Computation of Earnings Per Share for the Quarter and
Six Months Ended June 30, 1995 and 1994.
(b) Reports on Form 8-K
None
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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/Treasurer
(Chief Financial Officer)
August 10, 1995
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WATSCO, INC.
ARTICLE I
The name of the Corporation is Watsco, Inc.
ARTICLE II
The post office address of the principal office of this corporation in
the State of Florida is 2665 S. Bayshore Drive, Suite 901, Coconut Grove,
Florida 33133. The Board of Directors may from time to time move the office to
any other place in or outside the State of Florida.
ARTICLE III
A. The aggregate number of shares of Capital Stock which the
Corporation shall have the authority to issue is 44,000,000 shares, of which
40,000,000 shares, at the par value of $.50 per share, shall be designated as
Common Stock and 4,000,000 shares, at the par value of $.50 per share, shall be
designated as Class B Common Stock.
B. The Common Stock and the Class B Common Stock shall be
identical in all respects and shall have equal rights and privileges, except as
otherwise provided in this Article III.
(1) DIVIDENDS: Subject to sub-paragraph 2 below,
whenever a dividend is paid to the shareholders of Class B Common Stock, the
Corporation shall also pay to the holders of Common Stock a dividend per share
at least equal to the dividend per share paid to the holders of the Class B
Common Stock. The Corporation may pay dividends to the holders of Common Stock
in excess of dividends paid (or without paying dividends) to holders of Class B
Common Stock.
-1-
<PAGE>
(2) STOCK DISTRIBUTIONS: If at any time a stock
distribution is to be paid, such stock distribution may be declared and paid
only as follows:
(a) So long as no shares of Common Stock have
been issued or are outstanding, shares of Common Stock may be paid to holders of
Class B Common Stock.
(b) Shares of Common Stock may be paid to holders
of Common Stock and shares of Class B Common Stock may be paid to holders of
Class B Common Stock.
(c) Whenever a stock distribution is paid, the
same number of shares shall be paid with respect to each outstanding share of
Common Stock or Class B Common Stock. The Corporation shall not combine or
subdivide shares of either class without at the same time making an appropriate
combination or subdivision of shares of the other class.
(3) VOTING: Voting power shall be divided between the
Common Stock and Class B Common Stock as follows:
(a) With respect to the election of directors,
holders of Common Stock, voting as a separate class, shall be entitled to elect
that number of directors which constitute 25% of the authorized members of the
Board of Directors and, if such 25% is not a whole number, the holders of such
Common stock shall be entitled to elect the nearest higher whole number of
directors that is at least 25% of such membership. Holders of Class B Common
Stock, voting as a separate class, shall be entitled to elect the remaining
directors.
(b) The holders of Common Stock shall be entitled
to vote as a separate class on the removal, with or without cause, of any
director elected by the holders of Common Stock and the holders of Class B
Common Stock shall be entitled to vote as a separate class on the removal, with
or without cause, of any director elected by the holders of Class B Common
Stock.
(c) The holders of the Common Stock and the
holders of the Class B Common Stock shall be entitled to vote as separate
classes on such other matters as may be required by law or these Amended and
Restated Articles of Incorporation to be submitted to such holders voting as
separate classes.
-2-
<PAGE>
(d) Any vacancy in the office of a director
elected by the holders of the Common Stock may be filled by a vote of such
holders voting as a separate class and any vacancy in the office of a director
elected by the holders of the Class B Common Stock may be filled by a vote of
such holders acting as a separate class or, in the absence of a shareholder
vote, in the case of a vacancy of a director elected by either class, such
vacancy may be filled by the remaining directors as provided in the By-Laws.
Any director elected by the Board of Directors to fill a vacancy shall serve
until the next election of directors by shareholders and his or her successor
has been elected and qualified.
(e) The holders of Common Stock and Class B
Common Stock shall in all matters not specified in Sections (a), (b), (c) or (d)
of this sub-paragraph 3 ("VOTING") vote together as a single class; provided
that the holders of Common Stock shall have one (1) vote per share and the
holders of Class B Common Stock shall have ten (10) votes per share.
(f) The Common Stock will not have the right to
elect the directors set forth in paragraphs (a) and (d) above if, on the record
date for any shareholder meeting at which directors are to be elected, the
number of issued and outstanding shares of Common Stock is less than ten percent
(10%) of the aggregate number of issued and outstanding shares of Common Stock
and Class B Common Stock. In such cases, all directors to be elected at such
meeting shall be elected by holders of Common Stock and Class B Common Stock
voting together as a single class, provided that, with respect to said election,
the holders of Common Stock will have one (1) vote per share and holders of
Class B Common Stock, will have ten (10) votes per share.
(g) If, on the record date for any shareholder
meeting at which directors are to be elected, the number of issued and
outstanding shares of Class B Common Stock is less than 12-1/2% of the aggregate
number of issued and outstanding shares of Common Stock and Class B Common
Stock, then the holders of Common Stock shall continue to elect a number of
Class A Directors equal to 25% of the total number of directors constituting the
entire board of directors and, in addition, shall vote together with the holders
of Class B Common Stock to elect the Class B Directors to be elected at such
meeting, with the holders of Common Stock entitled to one (1) vote per share and
the holders of Class B Common Stock entitled to ten (10) votes per share.
-3-
<PAGE>
(h) Notwithstanding anything in this sub-
paragraph 3 ("VOTING") to the contrary, the holders of Common Stock shall have
exclusive voting power on all matters at any time when no Class B Common Stock
is issued and outstanding.
(4) CONVERSION: Each holder of record of Class B Common
Stock may at any time or may from time to time, in such holders' sole discretion
and at such holders' option, convert any whole number or all of such holders'
Class B Common Stock into fully paid and non-assessable shares of Common Stock
at the rate of one share of Common Stock for each share of Class B Common Stock
surrendered for conversion. Any such conversion may be effected by any holder
of Class B Common Stock surrendering such holder's certificate or certificates
for the Class B Common Stock to be converted, duly endorsed, at the office of
the Corporation or any transfer agent for the Class B Common Stock, together
with written notice to the Corporation at such office that such holder elects to
convert all or a specified number of Class B Common Stock and stating the name
or names in which such holder desires the certificate or certificates for such
Common Stock to be issued. Promptly thereafter, the Corporation shall issue and
deliver to such holder or holder's nominee, a certificate or certificates for
the number of shares of Common Stock to which such holder will be entitled as
aforesaid. Such conversion shall be deemed to have been made at the close of
business at date of such surrender and the person or persons entitled to receive
the Common Stock issuable on such conversion shall be treated for all purposes
as the record holder or holders of such Common Stock on that date.
No fractional shares of Common Stock shall be issued on conversion of
any Class B Common Stock but, in lieu thereof, the Corporation shall pay in cash
therefor the pro rata fair market value of any such fraction. Such fair market
value shall be based, in the case of publicly traded securities, on the last
sale price for such securities on the business day next prior to the date such
fair market value is to be determined or, in the event no sale is made on that
day, the average of the closing bid and ask prices for that day on the principal
stock exchange on which the Common Stock is traded or, if the Common Stock is
not then listed on a national securities exchange, the average of the closing
bid and ask prices for the day quoted by the NASDAQ System or, if the Common
Stock is not then quoted by the NASDAQ System, the fair market value on such day
determined by a qualified independent appraiser who is expert in evaluating such
property and appointed by the Board of Directors of the Corporation. Any such
determination of fair market value shall be final and binding on the Corporation
and on each holder of Common Stock or Class B Common Stock.
ARTICLE IV
This Corporation shall have perpetual existence.
-4-
<PAGE>
ARTICLE V
The Corporation shall have not less than three directors and not more
than nine to be divided, as nearly as possible, into three equal classes, Class
A, Class B, and Class C to serve in staggered terms of office of three years
apiece.
Therefore, approximately one-third of the members of the Board of
Directors shall be elected every three years to serve for a term of three years
until their successors are duly elected and qualified. Vacancies in the Board
of Directors shall be filled by the majority of the directors remaining in
office for the unexpired term of office created by the vacancy; provided,
however, that vacancies created by an increase in the number of directors by the
Board of Directors between annual stockholders meetings shall be filled by a
majority of the directors remaining in office until the next annual meeting of
stockholders.
ARTICLE VI
The Corporation reserves the right to amend or repeal any provision
contained in these Amended and Restated Articles of Incorporation, and any right
conferred upon the shareholders is subject to this reservation.
The By-Laws of the Corporation may be amended from time to time by
either the shareholders or the directors, but the directors may not alter or
amend any By-Law adopted by the shareholders.
Ownership of stock shall not be required to make any person eligible to
hold office either as an officer or director of this Corporation.
The shareholders may, by By-Law provision or by shareholders' agreement,
recorded in the minute book, impose such restrictions on the sale, transfer, or
encumbrance of the stock of this Corporation as they may see fit.
Any subscriber or stockholder present at any meeting, either in person
or by proxy, and any director present in person at any meeting of the Board of
Directors shall conclusively be deemed to have received proper notice of such
meeting unless he shall make objection at such meeting to any defect or
insufficiency of notice.
-5-
<PAGE>
Any contract or other transaction between the Corporation and one or
more of its directors, or between the Corporation and any firm of which one or
more of its directors are members or employees, or in which they are interested,
or between the Corporation and any corporation or association of which one or
more of it directors are shareholders, members, directors, officers, or
employees, or in which they are interested, shall be valid for all purposes,
notwithstanding the presence of such director or directors at the meeting of the
Board of Directors of the Corporation, which acts upon, or in reference to, such
contract or transaction, and notwithstanding his or their participation in such
action, if the fact of such interest shall be disclosed or known to the Board of
Directors and the Board of Directors shall, nevertheless, authorize, approve and
ratify such contract or transactions by a vote of a majority of the directors
present, such interested director or directors to be counted in determining
whether a quorum is present, but not to be counted in calculating the majority
necessary to carry such vote. This section shall not be construed to invalidate
any contract or other transaction which would otherwise be valid under the
common and statutory law applicable thereto.
The Board of Directors is hereby specifically authorized to make
provisions for reasonable compensation to its members for their services as
directors, and to fix the basis and conditions upon which such compensation
shall be paid. Any director of the Corporation may also serve the Corporation
in any other capacity and receive compensation in any form.
ARTICLE VII
The Corporation shall indemnify any director, officer, or employee, or
former director, officer or employee of the Corporation, or any person who may
have served at its request as a director, officer or employee of another
corporation in which it owns shares of capital stock, or of which it is a
creditor, against expenses actually and necessarily incurred by him in
connection with the defense of any action suit or proceeding in which he is made
a party by reason of being or having been such director, officer or employee,
except in relation to matters as to which he shall be adjudged in such action,
suit or proceeding to be liable for negligence or misconduct in the performance
of duty. The Corporation may also reimburse to any director, officer or
employee the reasonable costs of settlement of any such action, suit or
proceeding, if it shall be found by a majority of a committee composed of the
directors not involved in the matter in controversy (whether or not a quorum)
that it was to the interests of the corporation that such settlement be made and
that such director, officer or employee was not guilty of negligence or
misconduct. Such rights of indemnification and reimbursement shall not be
deemed exclusive of any other rights to which such director, officer or employee
may be entitled under any By-Law, agreement, vote of shareholders, or otherwise.
-6-
<PAGE>
ARTICLE VIII
No shareholder of the Corporation shall have any right to purchase his
pro rata share of any new issue of securities of any kind or class of the
Corporation, sold by the Corporation.
WATSCO, INC.
/s/ Ronald P. Newman
--------------------
Ronald P. Newman
Chief Financial Officer,
Treasurer and Secretary
-7-
EXHIBIT 11
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
Quarter and Six Months Ended June 30, 1995 and 1994
(In $000s except per share amounts)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994 (1) 1995 1994 (1)
------ -------- ------ --------
<S> <C> <C> <C> <C>
Net income $2,301 $1,926 $3,202 $2,616
Less subsidiary preferred stock dividend (32) (32) (64) (64)
------ ------ ------ ------
Income applicable to common stock
for primary earnings per share 2,269 1,894 3,138 2,552
Add interest expense, net of income tax effects,
attributable to convertible debentures 28 31 56 62
------ ------ ------ ------
Income applicable to common stock for
fully diluted earnings per share $2,297 $1,925 $3,194 $2,614
====== ====== ====== ======
Weighted average common shares outstanding 6,155 6,089 6,153 6,088
Additional shares assuming:
Exercise of stock options and warrants 382 250 325 201
------ ------ ------ ------
Shares used for primary earnings per share 6,537 6,339 6,478 6,289
Additional shares assuming:
Exercise of stock options and warrants 32 9 89 58
Conversion of 10% Convertible
Subordinated Debentures due 1996 248 276 248 276
------ ------ ------ ------
Shares used for fully diluted earnings per share 6,817 6,624 6,815 6,623
===== ===== ===== =====
Earnings per share:
Primary $.35 $.30 $.48 $.41
==== ==== ==== ====
Fully diluted $.34 $.29 $.47 $.39
==== ==== ==== ====
<FN>
(1) Weighted average common shares outstanding for the quarter and six months
ended June 30, 1994 have been restated to include the effect of a 3-for-2
stock split paid on May 15, 1995.
</FN>
</TABLE>
19 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE WATSCO, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,218
<SECURITIES> 1,281
<RECEIVABLES> 51,340
<ALLOWANCES> 3,328
<INVENTORY> 68,471
<CURRENT-ASSETS> 125,537
<PP&E> 21,693
<DEPRECIATION> 11,791
<TOTAL-ASSETS> 154,410
<CURRENT-LIABILITIES> 85,317
<BONDS> 7,138
<COMMON> 3,078
0
0
<OTHER-SE> 46,355
<TOTAL-LIABILITY-AND-EQUITY> 154,410
<SALES> 136,217
<TOTAL-REVENUES> 151,383
<CGS> 104,876
<TOTAL-COSTS> 116,504
<OTHER-EXPENSES> 25,877
<LOSS-PROVISION> 495
<INTEREST-EXPENSE> 1,923
<INCOME-PRETAX> 6,584
<INCOME-TAX> 2,534
<INCOME-CONTINUING> 3,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,202
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.47
</TABLE>
