SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-5581
WATSCO, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-0778222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2665 South Bayshore Drive, Suite 901,
Coconut Grove, FL 33133
(Address of principal executive offices)
Registrant's telephone number, including area code: (305) 858-0828
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $.50 par value New York Stock Exchange
Class B Common Stock, $.50 par value American Stock Exchange
10% Convertible Subordinated American Stock Exchange
Debentures Due 1996
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of class)
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 and 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form l0-K or any amendment to this
Form l0-K. X
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 21, 1996 was $183,491,004.
The number of shares of Common Stock outstanding as of March 21, 1996 was
7,544,771 shares of Common Stock and 1,442,378 shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Parts I and II is incorporated by reference
from the Annual Report to Stockholders for the year ended December 31, 1995,
attached hereto as Exhibit 13. The information required by Part III (Items 10,
11, 12 and 13) will be incorporated by reference from the Registrant's
definitive proxy statement (to be filed pursuant to Regulation 14A).
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Watsco, Inc. (the "Registrant" or the "Company") is the largest distributor
of residential central air conditioners and supplies in the United States, with
leading positions in Florida, Texas and California, the three largest air
conditioning markets in the country, as well as significant positions in
Alabama, Arkansas, Arizona, Louisiana, Nevada, North Carolina, Latin America and
South America. In 1989, the Company embarked on a strategy of establishing a
network of distribution facilities across the sunbelt where U.S. population
growth is greatest, weather patterns are predictably hot and air conditioning is
seen as a necessity. Since initiating this strategy, the Company's revenues have
increased from $25 million in 1988 to $331 million in 1995.
The Company estimates that the market for residential central air
conditioners and related supplies in the sunbelt was over $7 billion in 1994 and
has grown at an annual rate of 5.6% since 1990. The replacement market has
increased substantially in size over the past ten years, surpassing the
homebuilding market in significance as a result of the aging of the installed
base of residential central air conditioners, the introduction of new energy
efficient models and the upgrading of existing homes to central air
conditioning. According to the Air Conditioning and Refrigeration Institute
(ARI), over 61 million central air conditioner units have been installed in the
United States since 1975. Many of the units installed from the mid-1970s to the
mid-1980s are reaching the end of their useful lives, thus providing a growing
replacement market.
The Company focuses on satisfying the needs of the higher margin
replacement market, where customers demand immediate, convenient and reliable
service. The Company believes that its size and financial resources allow it to
provide superior customer service by offering a complete product line of
equipment, parts and supplies, multiple warehouse locations and well-stocked
inventories. The Company conducts its distribution business through its
subsidiaries: Gemaire Distributors, Inc. ("Gemaire"); Heating & Cooling Supply,
Inc. ("Heating & Cooling"); Comfort Supply, Inc. ("Comfort Supply"); and Central
Air Conditioning Distributors, Inc. ("Central Air Conditioning") (collectively,
the "Distribution Operations"). The primary supplier to the Distribution
Operations is Rheem Manufacturing Company ("Rheem"), one of the largest
manufacturers of residential central air conditioners in the United States,
based on the number of units sold.
The Company also sells to the homebuilding market. The Company believes
that its reputation for reliable, high quality service and its relationships
with contractors, who generally serve both the replacement and new construction
markets, allow it to compete effectively in this segment of the market.
Homebuilding remains below the levels of the mid-1970s to mid-1980s in many of
the markets the Company serves.
The Company has acquired eight air conditioning distributors since 1989
when the Company began its acquisition strategy to establish a network of
distribution branches across the sunbelt. The following is a description of the
Company's acquisitions completed in 1995:
Airite, Inc. - In February 1995, the Company acquired Airite, Inc., a
wholesale distributor of residential central air conditioners with branches in
Shreveport and Monroe, Louisiana and Texarkana, Texas. Airite sells to nearly
400 licensed air conditioning and heating contractors and the Company believes
that Airite had 1995 revenues of approximately $4 million.
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H.B. Adams, Inc. - In March 1995, the Company acquired certain assets of
H.B. Adams, Inc. (now operating as H.B. Adams Distributors, Inc.). H.B. Adams is
a wholesale distributor of air conditioning, heating and refrigeration products
and operates seven branches in the Tampa, Florida market area, the second
largest market for air conditioning equipment in Florida. H.B. Adams had 1995
revenues of approximately $20 million.
Environmental Equipment & Supplies, Inc. - In May 1995, the Company
acquired certain assets of Environmental Equipment & Supplies, Inc., a wholesale
distributor of air conditioning and heating equipment which sells to nearly 300
licensed air conditioning and heating contractors. Environmental Equipment
operates from branches in Fort Smith and Jonesboro, Arkansas and had 1995
revenues of approximately $6 million.
Central Air Conditioning Distributors, Inc. - In October 1995, the Company
acquired certain assets of Central Air Conditioning Distributors, Inc., a
wholesale distributor of residential central air conditioners and related
products. Central Air Conditioning sells to approximately 1,200 licensed air
conditioning and heating contractors from five branches in North Carolina and
had 1995 revenues of approximately $21 million.
In addition to distributing air conditioning and heating equipment, the
Company also produces over 4,000 electronic and mechanical components for air
conditioning, heating and refrigeration equipment through its manufacturing
subsidiaries: Watsco Components, Inc., Rho Sigma, Inc. and Cam-Stat, Inc. (the
"Manufacturing Operations"). These components are sold to over 5,000 wholesale
distributors and original equipment manufacturers ("OEMs").
The Company also owns Dunhill Personnel System, Inc. ("Dunhill"), a
national provider of permanent and temporary personnel services to business,
professional and service organizations, government agencies, health care
providers and other employers.
The Company's principal executive offices are located at 2665 South
Bayshore Drive, Suite 901, Coconut Grove, Florida 33133, and its telephone is
(305) 858-0828.
RECENT DEVELOPMENTS
On March 6, 1996, the Company completed a public offering in which it sold
1,570,000 shares of Common Stock resulting in net proceeds of approximately
$32.6 million. The Company intends to use approximately $14 million of the
proceeds to fund the pending acquisition of Three States Supply Company, Inc.
discussed below.
Effective March 19, 1996, the Company and Rheem completed a transaction
pursuant to a Stock Exchange Agreement and Plan of Reorganization (the "Exchange
Agreement") whereby the Company acquired Rheem's minority interests in three of
the Company's distribution subsidiaries. See "Relationship with Rheem
Manufacturing Company" for further discussion.
The Company has signed a letter of intent for the purchase of the net
assets and business of Three States Supply Company, Inc., a Memphis,
Tennessee-based distributor of building materials used primarily in the heating
and air conditioning industry. The completion of the transaction is subject to
certain conditions and is expected to occur during April 1996. The purchase
price, estimated at $14 million, is subject to adjustment upon the completion of
an audit of the net assets and will be funded from a portion of the proceeds
from the sale of Watsco's Common Stock completed on March 6, 1996.
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Also see "Liquidity and Capital Resources" in Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report to Shareholders for the year ended December 31, 1995
(the "1995 Annual Report").
INDUSTRY SEGMENT INFORMATION
The Climate Control segment consists of the Distribution Operations and the
Manufacturing Operations. The Distribution Operations distribute residential
central air conditioners and related parts and supplies in Florida, California,
Texas, Alabama, Arkansas, Arizona, Louisiana, Nevada, North Carolina and Latin
America and South America. The Manufacturing Operations make components and
equipment which are sold and distributed to the air conditioning, refrigeration
and heating industry (see "Climate Control Segment").
In the Personnel Services segment, Dunhill and its subsidiaries provide
temporary help and permanent placement services (see "Personnel Services
Segment"). The Company also has certain employees and resources which provide
services to each of these segments. Note 12 of Notes to Consolidated Financial
Statements, included in the Company's 1995 Annual Report, incorporated herein by
reference under Item 8, contains a table setting forth the revenues and
operating income of the Company's two industry segments during the three years
ended December 31, 1995, 1994 and 1993.
DESCRIPTION OF BUSINESS
DISTRIBUTION OPERATIONS
PRODUCTS The Company markets a complete line of residential central air
conditioners (primarily under the Rheem brand name) and related parts and
supplies and maintains sufficient inventory to meet customers' immediate needs.
The Company's strategy is to provide every product a contractor generally would
require in order to install or repair a residential or light commercial central
air conditioner. Such products include residential central air conditioners
ranging from 1-1/2 to 5 tons*, light commercial air conditioners ranging up to
20 tons, insulation, grills, sheet metal and other ductwork, copper tubing,
concrete pads and tape. In addition, the Company also sells products such as
electric and gas heating units, air-to-air heat pumps and rooftop equipment.
Sales of air conditioning and heating equipment accounted for approximately 63%
of the distribution operations' revenues for 1995. Sales of parts and supplies
(currently numbering approximately 28,000 different inventory items) comprised
the remaining portions of revenues. In 1995, purchases of Rheem products
represented approximately 58% of the aggregate purchases of the distribution
operations. Any significant interruption in the delivery of Rheem's products
would inhibit the Company's ability to continue to maintain its current
inventory levels and could adversely affect the Company's business. The
Company's future results of operations are also materially dependent upon the
continued market acceptance of Rheem's products and the ability of Rheem to
continue to manufacture products that comply with laws relating to environmental
and efficiency standards.
* The cooling capacity of air conditioning units is measured in tons. One ton
of cooling capacity is equivalent to 12,000 BTUs and is generally adequate
to air condition approximately 500 square feet of residential space.
DISTRIBUTION AND SALES The Company operates from 70 branch warehouses
located in regions of the sunbelt which the Company believes have favorable
demographic trends. The Company maintains well-stocked inventories at each
warehouse location to meet the immediate need of its customers. This is
accomplished by transporting inventory between warehouses daily and either
directly delivering products to customers with the Company's fleet of 137 trucks
or making the products available for pick-up at the branch nearest to the
customer. The company has 111 commissioned salespeople who average 16 years of
experience in the residential central air conditioning distribution industry.
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MARKETS The Company has been granted exclusive rights under distribution
agreements for Rheem brand-name products in each of the most significant market
areas and many of the major metropolitan areas in the United States sunbelt
including: Florida; the eastern half of Texas (including the Dallas, Houston,
San Antonio and Austin metropolitan areas), southern and central California;
Arizona; Nevada; western North Carolina (including the Charlotte metropolitan
area) and additional territories in Louisiana; Alabama and Arkansas. The Company
also has distribution rights for the Rheem brand name or Weatherking brand name
(manufactured by Rheem) in substantially all of Central America, South America
and the Caribbean.
CUSTOMERS AND CUSTOMER SERVICE The Company sells to contractors and dealers
who service the new construction and replacement markets for residential and
light commercial central air conditioners. In 1995, the Company served over
13,600 customers, with no single customer accounting for more than 2% of
consolidated revenues. The Company focuses on providing products where and when
the customer needs them, technical support by phone or on site as required, and
quick and efficient service at the distribution branches. Management believes
that the Company successfully competes with other distributors in the
residential and light commercial central air conditioning market primarily on
the basis of its experienced sales organization, strong service support, high
quality reputation and broad product lines.
RELATIONSHIP WITH RHEEM MANUFACTURING COMPANY The Company is Rheem's
largest distributor and believes that it maintains a unique and mutually
beneficial relationship with Rheem, one of the largest manufacturers of
residential central air conditioning equipment in the United States. Rheem has a
well-established reputation of producing high-quality, competitively priced
products. The Company believes that Rheem's current product offerings, quality,
serviceability and brand-name recognition allow the Company to operate favorably
against its competitors. To maintain brand-name recognition, Rheem provides
national advertising and participates with the Company in cooperative
advertising programs and promotional incentives that are targeted to both
contractors and homeowners. The Company estimates the replacement market
currently accounts for approximately 65% of industry sales in the United States
and expects this percentage to increase as units installed in the 1970s and
1980s wear out and get replaced or updated to more energy-efficient models. The
Company believes Rheem's products have wide acceptance in the replacement market
based on their high efficiency and low noise level -- two key homeowner
considerations. Additionally, Rheem has demonstrated the flexibility to
manufacture products to international specifications to meet export demands.
Rheem acquired minority ownership interests in Gemaire (20%), Comfort
Supply (20%) and Heating & Cooling (50%) as a joint venture partner with the
Company in the acquisition of each of these subsidiaries. In March 1996, the
Company and Rheem restructured their relationship upon completing a transaction
pursuant to a Stock Exchange Agreement and Plan of Reorganization (the "Exchange
Agreement") whereby the Company acquired Rheem's minority ownership interests of
these three subsidiaries in exchange for 964,361 shares of the Company's
unregistered Common Stock. Following completion of this transaction, Gemaire,
Comfort Supply and Heating & Cooling became wholly owned subsidiaries of the
Company. Also, Rheem's Chief Executive Officer will become a member of the
Company's Board of Directors.
The Exchange Agreement modified certain other agreements with respect to
each of the distribution subsidiaries on terms that are favorable to the
Company. Previous agreements between the Company and Rheem provided Rheem with
the right to "call" from the Company and the Company with the right to "put" to
Rheem the Company's ownership interests in Gemaire, Comfort Supply and Heating &
Cooling during specified periods according to prescribed valuation formulas.
Under the terms of the Exchange Agreement, the put/call provisions are
effectively eliminated because the rights to "put" or "call" become exercisable
primarily upon the occurrence of certain insolvency events.
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The Company also has distribution agreements with Rheem. The distribution
agreements of Gemaire, Comfort Supply and Heating & Cooling extend through 2006
with annual renewals thereafter. These distribution agreements contain
provisions limiting the sale of products that are directly competitive with
Rheem products. Based on the acceptance of other complimentary, non-competitive
equipment products and the Company's additional focus on the sale of parts and
supplies, the Company does not believe that such limitations have a material
effect on its operations. Except for the limitations set forth in the
distribution agreements of Gemaire, Comfort Supply and Heating & Cooling, the
Company may distribute other manufacturers' lines of air conditioning equipment.
MANUFACTURING OPERATIONS
The Company's manufacturing operations are highly self-sufficient and
include facilities for die-casting, stamping, screw machining, secondary metal
working operations and a fully equipped tool room. The Company has not
encountered significant problems in obtaining manufacturing materials,
consisting primarily of metals and other raw materials, which are readily
available from many suppliers.
PRODUCTS The Company produces over 4,000 electronic and mechanical
components for air conditioning, heating and refrigeration equipment. Products
include: components, such as line tap and specialty valves, motor compressor
protectors, liquid sight glasses and warm air controls; and equipment, such as
vacuum pumps and refrigerant recovery systems. Many of the Company's products
are patented and compete in the market place based on uniqueness as well as
quality and price.
CUSTOMERS The Company's OEM customers include most of the major residential
air conditioning manufacturers such as Rheem, Carrier Air Conditioning, Inc.,
Inter-City Products Corporation and York International (through its Evcon
subsidiary). Another significant OEM customer, RV Products, Inc., is the
nation's largest manufacturer of air conditioning for recreational vehicles. The
Company also sells to wholesale distributors who distribute the Company's
products to the aftermarket. In 1995, the Company served over 5,000 domestic and
international customers, with no single customer accounting for more than 1% of
consolidated revenues.
RESEARCH AND DEVELOPMENT The Company conducts research and development to
improve the quality and performance of its manufactured products and to develop
new products and product line improvements. The Company performs research and
development both in-house and by extensive field testing of products. The
Company's engineering staff, consisting of 11 employees, develops new customized
products to end-user specification and continuously improves, supplements and
enhances product lines with newly developed products.
PERSONNEL SERVICES SEGMENT
Dunhill, founded in 1952, is one of the nation's best known personnel
service networks. Through franchised, licensed, and company-owned offices in 38
states, Puerto Rico and Canada, Dunhill provides permanent placement and
temporary help services to businesses, professional and service organizations,
government agencies, health care providers, and other employers. Dunhill's
operations consist of 114 franchised permanent placement offices and 19
franchised, 5 licensed and 14 company-owned temporary personnel service offices.
Dunhill's franchisees operate their businesses autonomously within the framework
of the Company's policies and standards, and recruit, employ, and pay their own
employees, including temporary employees. Dunhill's permanent placement division
recruits primarily middle-management, sales, technical, administrative and
support personnel for permanent employment in a wide variety of industries and
positions. The fees paid by employers to Dunhill for its permanent placement
services are typically contingent upon the successful placement of an employee
and are generally a percentage of the annual compensation to be paid to the new
employee.
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Dunhill receives an initial fee from all licensees and franchisees, and
on-going revenues in the form of royalty fees and commissions from temporary
help licensees and franchisees and permanent placement operations. Licenses and
franchises are generally granted for 5 and 10 year terms, respectively, and are
typically renewable at the option of the licensee or franchisee for additional
terms of 5 and 10 years, respectively.
OTHER INFORMATION
COMPETITION
All of the Company's businesses operate in highly competitive environments.
The Company's distribution business competes with a number of distributors and
also with air conditioner manufacturers who distribute a significant portion of
their products through factory-owned distribution organizations. Many of the
manufacturers which have distribution organizations are larger than the Company
and have substantial financial resources. Competition within any given
geographic market is based upon product availability, customer service, price
and quality. The Company's manufacturing business has several major competitors,
a few of which are larger and have substantial financial resources. Dunhill
competes with numerous other large and small national, regional, and local
personnel service providers. Competitive pressures or other factors could cause
the Company's products or services to lose market acceptance or result in
significant price erosion, all of which would have a material adverse effect on
the Company's profitability.
EMPLOYEES
The Climate Control segment employed 929 persons and the Personnel Services
segment employed 91 persons as of March 21, 1996. The Company believes that its
relations with these employees are good.
SEASONALITY
Sales of residential central air conditioners, heating equipment and parts
and supplies manufactured and distributed by the Company have historically been
seasonal. Demand related to the residential replacement market generally peaks
in the third quarter for air conditioners (the Company's principal distribution
product) and in the fourth quarter for heating equipment. Demand related to the
new construction market varies according to the season, with increased demand
generally from March through October.
OTHER
Order backlog is not a material aspect of the Company's business and no
material portion of the Company's business is subject to government contracts.
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ITEM 2. PROPERTIES
The Company's significant facilities are currently in the following
locations:
<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION USE FOOTAGE LEASED
-------- --- ------- ------
<S> <C> <C> <C>
Watsco:
Coconut Grove, FL Headquarters 3,137 Leased
Manufacturing Operations:
Hialeah, FL Manufacturing 90,000 Owned
Hialeah, FL Manufacturing 36,000 Owned
Hialeah, FL Manufacturing 12,000 Owned
Gemaire:
Deerfield Beach, FL Headquarters 10,768 Leased
Tampa, FL Warehouse 50,000 Leased
Deerfield Beach, FL Warehouse 48,500 Leased
Orlando, FL Warehouse 30,000 Leased
Miami, FL Warehouse 28,306 Leased
Clearwater, FL Warehouse 22,000 Leased
Lakeland, FL Warehouse 15,000 Leased
Mobile, AL Warehouse 15,000 Leased
Perrine, FL Warehouse 13,234 Leased
Riviera Beach, FL Warehouse 12,800 Leased
Lakeland, FL Warehouse 12,000 Leased
Pensacola, FL Warehouse 12,000 Leased
Hollywood, FL Warehouse 11,400 Leased
Tampa, FL Warehouse 11,000 Leased
Daytona Beach, FL Warehouse 10,000 Leased
Ft. Myers, FL Warehouse 10,000 Leased
Melbourne, FL Warehouse 10,000 Leased
New Port Richey, FL Warehouse 10,000 Leased
Ocala, FL Warehouse 10,000 Leased
St. Petersburg, FL Warehouse 10,000 Leased
Vero Beach, FL Warehouse 10,000 Leased
Jacksonville, FL Warehouse 9,790 Leased
Sarasota, FL Warehouse 8,578 Leased
Ft. Walton Beach, FL Warehouse 8,000 Leased
Tallahassee, FL Warehouse 8,000 Leased
Panama City, FL Warehouse 7,500 Leased
Lakeland, FL Warehouse 7,200 Leased
Sebring, FL Warehouse 7,000 Leased
Winter Haven, FL Warehouse 7,000 Leased
Murdock, FL Warehouse 6,300 Leased
St. Petersburg, FL Warehouse 5,000 Leased
Heating & Cooling:
San Diego, CA Headquarters 7,200 Leased
Modesto, CA Warehouse 60,000 Leased
Phoenix, AZ Warehouse 30,000 Leased
Fresno, CA Warehouse 25,079 Leased
Orange, CA Warehouse 25,050 Leased
San Diego, CA Warehouse 25,000 Leased
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SQUARE OWNED/
LOCATION USE FOOTAGE LEASED
-------- --- ------- ------
Heating & Cooling (cont.):
Riverside, CA Warehouse 24,940 Leased
Sacramento, CA Warehouse 24,000 Leased
Van Nuys, CA Warehouse 22,100 Leased
Santa Clara, CA Warehouse 20,000 Leased
Las Vegas, NV Warehouse 19,600 Leased
Escondido, CA Warehouse 15,000 Leased
Long Beach, CA Warehouse 15,000 Leased
Tucson, AZ Warehouse 14,500 Leased
Oxnard, CA Warehouse 14,344 Leased
El Monte, CA Warehouse 11,200 Leased
Yuma, AZ Warehouse 3,800 Leased
Comfort Supply:
Houston, TX Headquarters/Warehouse 38,780 Leased
Carrollton, TX Warehouse 35,000 Leased
North Little Rock, AR Warehouse 25,000 Leased
Bryan, TX Warehouse 21,750 Leased
Harlingen, TX Warehouse 17,000 Leased
Killeen, TX Warehouse 17,000 Leased
Shreveport, LA Warehouse 16,000 Leased
Austin, TX Warehouse 15,700 Leased
Haltom City, TX Warehouse 15,000 Leased
Houston, TX Warehouse 15,000 Leased
Longview, TX Warehouse 15,000 Owned
Houston, TX Warehouse 14,800 Leased
San Antonio, TX Warehouse 14,000 Leased
Houston, TX Warehouse 12,000 Leased
Dallas, TX Warehouse 11,250 Leased
Stafford, TX Warehouse 5,500 Leased
Jonesboro, AR Warehouse 5,000 Leased
Texarkana, TX Warehouse 3,800 Leased
Monroe, LA Warehouse 3,500 Leased
Central Air Conditioning:
Winston-Salem, NC Headquarters/Warehouse 12,500 Leased
Hickory, NC Warehouse 22,806 Leased
Greensboro, NC Warehouse 20,000 Leased
Charlotte, NC Warehouse 19,000 Leased
Winston-Salem, NC Warehouse 14,500 Leased
Asheville, NC Warehouse 10,000 Leased
Dunhill:
Woodbury, NY Headquarters 8,500 Leased
</TABLE>
The Company believes that its facilities are well maintained and adequate to
meet its needs.
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ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation. Based on the
advice of legal counsel, the Company believes that such actions presently
pending will not have a material adverse impact on the Company's consolidated
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the year ended December 31, 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Page 28 of the 1995 Annual Report contains "Information on Common Stock",
which identifies the market on which the Registrant's Common Stocks are being
traded and contains the high and low sales prices and dividend information for
the years ended December 31, 1995, 1994 and 1993 and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Page 8 of the Company's 1995 Annual Report contains "Selected Consolidated
Financial Data" and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pages 9 through 11 of the Company's 1995 Annual Report contain
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 12 through 25 of the Company's 1995 Annual Report contain the
Consolidated Financial Statements of the Company at December 31, 1995 and 1994
and for the years ended December 31, 1995, 1994 and 1993 and is incorporated
herein by reference. The Company's unaudited quarterly financial data for the
years ended December 31, 1995, 1994 and 1993 is included in the 1995 Annual
Report on page 27. The Report of Independent Certified Public Accountants for
the years ended December 31, 1995, 1994 and 1993 is included in the Company's
1995 Annual Report on page 26.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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PART III
This part of Form 10-K, which includes Items 10 through 13, is omitted
because the Registrant will file definitive proxy material pursuant to
Regulation 14A not more than 120 days after the close of the Registrant's year
end, which proxy material will include the information required by Items 10
through 13 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
Financial Statements
(a) (i) Data incorporated by reference from the attached
1995 Annual Report of Watsco, Inc.:
Report of Independent Certified Public Accountants
Consolidated Statements of Income for the years
ended December 31, 1995, 1994 and 1993
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Financial Statement Schedules
(a) (ii) Data included herein:
Report of Independent Certified Public
Accountants on Schedules 16
Consolidated financial statement schedules for
the years ended December 31, 1995, 1994 and 1993
I. Condensed financial information of Registrant 17-19
II. Valuation and qualifying accounts 20
All other schedules have been omitted since the required information
is not present, or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the Consolidated Financial Statements or notes thereto.
</TABLE>
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(a) (iii) Exhibits:
3.1 Company's Amended and Restated Articles of Incorporation (filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q dated
June 30, 1995 and incorporated herein by reference).
3.2 Company's Amended Bylaws (filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1985 and incorporated herein by reference).
4.1 Indenture dated as of September 12, 1986 between the Company and
Southeast Bank, N.A. (filed as Exhibit 4 to the Company's
Registration Statement on Form S-3 (No. 33-7758) and incorporated
herein by reference).
4.2 Specimen form of Class B Common Stock Certificate (filed as Exhibit
4.6 to the Company's Registration Statement on Form S-1 (No.
33-56646) and incorporated herein by reference).
4.3 Specimen form of Common Stock Certificate (filed as Exhibit 4.4 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10.1 Rheem Manufacturing Company Distributor Agreement by and between
Rheem Manufacturing Company and Gemaire Distributors, Inc., dated
December 30, 1988 (filed as Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference).
10.2 Amendment dated January 4, 1991 to Distribution Agreement dated
December 30, 1990 between Rheem Manufacturing Company and Gemaire
Distributors, Inc. (filed as Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (No. 33-56646) and incorporated
herein by reference).
10.3 Distributor Agreement between Heating & Cooling Supply, Inc. and
Rheem Manufacturing, Inc. dated October 15, 1990 (filed as Exhibit
10.17 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 and incorporated herein by reference).
10.4 Rheem Manufacturing Company Distributor Agreement by and between
Rheem Manufacturing Company and Comfort Supply, Inc. (filed as
Exhibit 10.20 to the Company's Form 8-K dated May 26, 1993 and
incorporated herein by reference).
10.5 Preferred Stock Purchase Agreement between Heating & Cooling
Supply, Inc. and Rheem Manufacturing Company dated June 10, 1993
(filed as Exhibit 10.27 to the Company's Quarterly Report on Form
10-Q dated September 30, 1993 and incorporated herein by
reference).
10.6 Line of Credit Agreement by and between Comfort Supply, Inc. and
NationsBank of Florida, N.A. dated September 23, 1993 (filed as
Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q dated
September 30, 1993 and incorporated herein by reference).
10.7 Amended and Restated Revolving Credit and Term Loan Agreement by
and between NationsBank of Florida, N.A. and Gemaire Distributors,
Inc. dated March 10, 1995 (filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
13
<PAGE>
10.8 Line of Credit Agreement between Heating & Cooling Supply, Inc. and
Bank of America National Trust and Savings Association dated
September 28, 1995 (filed as Exhibit 10.26 to the Company's
Quarterly Report on Form 10-Q dated September 30, 1995 and
incorporated herein by reference).
10.9 Revolving Credit Agreement dated October 26, 1995 by and between
CAC Acquisition, Inc. and NationsBank of Florida, N.A. (filed as
Exhibit 10.27 to the Company's Registration Statement on Form S-3
(No. 333-00371) and incorporated herein by reference).
10.10 Stock Exchange Agreement and Plan of Reorganization dated February
6, 1996 by and between Watsco, Inc. and Rheem Manufacturing Company
(filed as Exhibit 10.29 to the Company's Registration Statement on
Form S-3 (No. 333-00371) and incorporated herein by reference).
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
10.11 Amendment dated February 6, 1996 to Distributor Agreement 22-24
dated December 30, 1998 between Rheem Manufacturing Company
and Gemaire Distributors, Inc.
10.12 Amendment dated February 6, 1996 to Distributor Agreement 25-27
dated May 25, 1993 (and as amended by Supplemental Agreement
dated as of June 1, 1995) between Rheem Manufacturing Company
and Comfort Supply, Inc.
10.13 Amendment dated February 6, 1996 to Distributor Agreement 28-30
dated October 15, 1990 between Rheem Manufacturing Company
and Heating & Cooling Supply, Inc.
11. Computation of Earnings Per Share for the years ended 31
December 31, 1995, 1994 and 1993
13. 1995 Annual Report to Shareholders. With the exception 32-55
of the information incorporated by reference into Items 1, 5, 6, 7
and 8 of this Form 10-K, the 1995 Annual Report to Shareholders
is not deemed filed as part of this Form 10-K.
22. Subsidiaries of the Registrant 56
23. Consent of Independent Certified Public Accountants 57
Management Contracts and Compensatory Plans or Arrangements:
27. Financial Data Schedule (for SEC use only) 58
10.14 1983 Executive Stock Option Plan of Watsco, Inc. (filed as Exhibit
10.3 to the Company's Registration Statement on Form S-8
(Registration No. 33-6229) and incorporated herein by reference).
10.15 Key Executive Deferred Compensation Agreement dated January 31,
1983, between Watsco, Inc. and Albert H. Nahmad (filed as Exhibit
10.8 to the Company's Registration Statement on Form S-1
(No. 33-56646) and incorporated herein by reference).
</TABLE>
14
<PAGE>
10.16 Watsco, Inc. Amended and Restated 1991 Stock Option Plan (filed as
Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q dated
June 30, 1993 and incorporated herein by reference).
10.17 Watsco, Inc. Amended and Restated Profit Sharing Retirement Plan
and Trust Agreement dated October 21, 1994 (filed as Exhibit 10.25
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).
(b) Reports on Form 8-K
None.
15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
To the Board of Directors and
Shareholders of Watsco, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Watsco, Inc.'s annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated March 29, 1996. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The accompanying
Schedules I and II are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 29, 1996.
16
<PAGE>
WATSCO, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(In thousands of dollars)
<TABLE>
<CAPTION>
(a) Balance Sheets December 31,
- ------------------
1995 1994
-------- ------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 811 $ 259
Marketable securities 267 3,227
Other current assets 520 415
------- -------
Total current assets 1,598 3,901
Investments in and net advances
to subsidiaries 51,301 45,139
Property, plant and equipment, at cost
less accumulated depreciation 2,084 1,743
Other assets 3,154 3,214
------- -------
$58,137 $53,997
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of bank and other debt $ 1,666 $ 1,174
Accounts payable and accrued liabilities 1,002 3,509
------- -------
Total current liabilities 2,668 4,683
Bank and other debt 1,495 837
Subordinated debentures - 1,505
Deferred income taxes 218 156
Shareholders' equity:
Common stock 3,141 3,075
Paid-in capital 19,479 18,565
Retained earnings 31,136 25,176
------- -------
Total shareholders' equity 53,756 46,816
------- -------
$58,137 $53,997
======= =======
</TABLE>
(Continued)
17
<PAGE>
WATSCO, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For the Years Ended December 31,
(In thousands of dollars)
(Continued)
<TABLE>
<CAPTION>
(b) Statements of Income
- ------------------------
1995 1994 1993
------- --------- ------
<S> <C> <C> <C>
Equity in net income of subsidiaries $ 8,641 $ 7,721 $ 6,169
Investment income, net 185 127 361
General and administrative expenses (1,761) (2,574) (1,621)
Interest expense (258) (299) (425)
------- ------- -------
Income before taxes 6,807 4,975 4,484
Income tax benefit (A) 443 787 557
------- ------- -------
Net income $ 7,250 $ 5,762 $ 5,041
======= ======= =======
</TABLE>
(A) Income taxes are recorded at statutory rates receiving benefit for the
dividends received deduction and tax free interest.
(Continued)
18
<PAGE>
WATSCO, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For the Years Ended December 31,
(In thousands of dollars)
(Continued)
<TABLE>
<CAPTION>
(c) Statements of Cash Flows
- ----------------------------
1995 1994 1993
---------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 7,250 $ 5,762 $ 5,041
Adjustments to reconcile net income to
net cash provided by (used in) operating activities-
Equity in net income of subsidiaries, net of cash
dividends of $2,599 in 1995, $4,678
in 1994 and $1,587 in 1993 (6,042) (3,043) (4,582)
Depreciation and amortization 39 32 58
Net investment gains (27) (6) (161)
Deferred tax provision (benefit) 62 (486) (508)
Noncash stock contribution to 40l(k) plan 149 137 111
Changes in operating assets and liabilities:
Other current assets (105) 115 (151)
Accounts payable and accrued liabilities (2,507) 1,329 (369)
Other, net 67 (460) (256)
-------- --------- ---------
Net cash provided by (used in) operating activities (1,114) 3,380 (817)
-------- --------- ---------
Cash flows from investing activities:
Cash used in acquisition in 1995 and 1993 (1) - (3,418)
Net proceeds from sales (purchases) of
marketable securities 2,960 (2,258) (906)
Net advances from (to) subsidiaries (119) 659 (2,989)
Other, net (360) (510) (318)
-------- --------- ---------
Net cash provided by (used in) investing activities 2,480 (2,109) (7,631)
-------- --------- ---------
Cash flows from financing activities:
Net borrowings (repayments) of long-term obligations (191) 17 (303)
Net proceeds from issuances of common stock 667 138 9,680
Cash dividends paid on common stock (1,160) (1,037) (887)
Other, net (130) (130) (70)
-------- --------- ---------
Net cash provided by (used in) financing activities (814) (1,012) 8,420
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents 552 259 (28)
Cash and cash equivalents at beginning of year 259 - 28
-------- --------- ---------
Cash and cash equivalents at end of year $ 811 $ 259 $ -
======== ========= =========
Supplemental disclosures:
Net income tax payments $ 4,522 $ 3,493 $ 4,350
Interest paid 264 285 432
</TABLE>
In 1995, 1994 and 1993, $164,000, $192,000 and $2,607,000, respectively, of 10%
Convertible Subordinated Debentures due 1996 were converted into Common Stock.
In May 1995, the Company effected a three-for-two stock split in the form of a
50% stock dividend for both classes of its common stock which had the effect of
increasing the Company's common stock account by $1,024,000 and reducing paid-in
capital and retained earnings by $371,000 and $653,000, respectively.
19
<PAGE>
WATSCO, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994 and 1993
(In thousands of dollars)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
BALANCE, December 31, 1992 $2,767
Allowances from acquisitions 583
Additions charged to costs and expenses 315
Recoveries 73
Write-offs (726)
--------
BALANCE, December 31, 1993 3,012
Additions charged to costs and expenses 597
Recoveries 44
Write-offs (972)
--------
BALANCE, December 31, 1994 2,681
Allowances from acquisitions 453
Additions charged to costs and expenses 1,197
Recoveries 89
Write-offs (1,319)
--------
BALANCE, December 31, 1995 $3,101
========
20
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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.
March 29, 1996 By: /s/ Albert H. Nahmad
--------------------------------
Albert H. Nahmad, President
March 29, 1996 By: /s/ Ronald P. Newman
--------------------------------
Ronald P. Newman, Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Albert H. Nahmad Chairman of the Board and March 29, 1996
- -------------------------------- President (principal
Albert H. Nahmad executive officer)
/s/ Ronald P. Newman Vice President of Finance, March 29, 1996
- -------------------------------- Secretary and Treasurer
Ronald P. Newman (principal financial and
accounting officer)
/s/ D.A. Coape-Arnold Director March 29, 1996
- --------------------------------
D.A. Coape-Arnold
/s/ David B. Fleeman Director March 29, 1996
- --------------------------------
David B. Fleeman
/s/ James S. Grien Director March 29, 1996
- --------------------------------
James S. Grien
/s/ Paul F. Manley Director March 29, 1996
- --------------------------------
Paul F. Manley
/s/ Bob L. Moss Director March 29, 1996
- --------------------------------
Bob L. Moss
/s/ Roberto Motta Director March 29, 1996
- --------------------------------
Roberto Motta
/s/ Alan H. Potamkin Director March 29, 1996
- --------------------------------
Alan H. Potamkin
</TABLE>
21
EXHIBIT 10.11
THIS AMENDMENT AGREEMENT made as of the 6th day of February 1996 by and
between Rheem Manufacturing Company, Air Conditioning Division (hereinafter
referred to as "Rheem") and Gemaire Distributors, Inc. (hereinafter referred to
as "Gemaire").
W I T N E S S E T H :
WHEREAS, Rheem and Gemaire are parties to a distributor agreement dated the
30th day of December, 1988 (the "Agreement"); and
WHEREAS, Rheem and Gemaire agree to amend the Agreement on the terms and
conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth together with other good and
valuable consideration, receipt hereof is hereby by each party acknowledged, the
parties hereto covenant and agree, each with the other, as follows:
FIRST: The Agreement shall be amended by deleting Article 3 in its entirety
and inserting the following in lieu thereof:
"3. TERM. Unless otherwise sooner terminated as provided herein, this
Agreement shall terminate on February 1, 2006 , and shall be automatically
extended for additional one (1) year periods on an "evergreen" basis.
SECOND: The following shall be inserted as Section 10 of the Agreement as
follows:
"10. CERTAIN OTHER MODIFICATIONS, DISPUTE RESOLUTION PROCEDURES. Upon
the termination of the "Put" and "Call" obligations contained in Section 3 of
the Subscription and Shareholders' Agreement dated as of the 30th day of
December, 1988 among W. R. Acquisition Inc., Watsco, Inc. ("Watsco") and Rheem
Manufacturing Company ("Rheem") and Section 5.2 of a Stock Exchange Agreement
dated as of February 1, 1996 between Watsco and Rheem, Gemaire and Rheem agree
that the Agreement shall be deemed to be modified and shall be modified as
follows:
<PAGE>
10.1 The Agreement shall terminate in the event that Rheem impedes the
long-term competitiveness of Gemaire in terms of quality, price or delivery as
determined in accordance with the dispute resolution procedures which are
outlined and provided for in Section 10.3 herein.
10.2 "Specific performance" shall be available and permitted in the
event of any irreconcilable violation of the Agreement.
10.3 The following dispute resolution procedures shall govern, in the
order of priority set forth below, in the event there is an irreconcilable
dispute between Watsco and Rheem with respect to the Agreement.
(a) The chief executive officers of Watsco and Rheem shall attempt in
good faith, to resolve the dispute during the ten (10) day period following the
date on which such dispute becomes irreconcilable.
(b) In the event that the chief executive officers of Watsco and Rheem
are unable to resolve the dispute within such ten (10) day period, the dispute
shall be submitted to an independent third party mediator to be agreed upon by
the chief executive officers of Watsco and Rheem (or the managing partner of the
Washington, D.C. offices of Price Waterhouse and Company or another "big six"
accounting firm that is not used by or associated with either Rheem or Watsco in
the event that the chief executive officers of Watsco and Rheem are unable to
agree upon an independent third party mediator).
(c) In the event that Watsco or Rheem fails to implement the decision
made by the mediator in respect of the dispute within ten (10) days of such
decision, the other party shall have the right to a confession of judgment to
implement the decision of the mediator. Each of Watsco and Rheem hereby agree to
take any and all actions, and to cooperate with the other in any reasonably
requested manner, necessary to obtain any such confession of judgment."
THIRD: Except as amended, modified or revised hereby, all provisions of the
Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this Amendment Agreement
to be executed as of the date first written above.
RHEEM MANUFACTURING COMPANY
Air Conditioning Division
BY: /s/ ROSS W. WILLIS
---------------------------
ATTEST: President
/s/ VINCENT J. DEBO
- --------------------
Assistant Secretary
GEMAIRE DISTRIBUTORS, INC.
BY: /s/ KENNETH A. PERKINS
---------------------------
Ken Perkins
President
ATTEST:
/s/ RONALD P. NEWMAN
- --------------------
Secretary
3
EXHIBIT 10.12
THIS AMENDMENT AGREEMENT made as of the 6th day of February 1996 by and
between Rheem Manufacturing Company, Air Conditioning Division (hereinafter
referred to as "Rheem") and Comfort Supply, Inc. (hereinafter referred to as
"Comfort").
W I T N E S S E T H :
WHEREAS, Rheem and Comfort are parties to a distributor agreement dated the
25th day of May, 1993 (and as amended by Supplemental Agreement dated as of June
1, 1995 (collectively, the "Agreement"); and
WHEREAS, Rheem and Comfort agree to amend the Agreement on the terms and
conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth together with other good and
valuable consideration, receipt hereof is hereby by each party acknowledged, the
parties hereto covenant and agree, each with the other, as follows:
FIRST: The Agreement shall be amended by deleting Article 3 in its entirety
and inserting the following in lieu thereof:
"3. TERM. Unless otherwise sooner terminated as provided herein, this
Agreement shall terminate on February 1, 2006 , and shall be automatically
extended for additional one (1) year periods on an "evergreen" basis.
SECOND: The following shall be inserted as Section 10 of the Agreement as
follows:
"10. CERTAIN OTHER MODIFICATIONS, DISPUTE RESOLUTION PROCEDURES. Upon
the termination of the "Put" and "Call" obligations contained in Section 3 of
the Subscription and Shareholders' Agreement dated as of the 25th day of May,
1993 among CSI Acquisition Inc., Watsco, Inc. ("Watsco") and Rheem Manufacturing
Company ("Rheem") and Section 5.2 of a Stock Exchange Agreement dated as of
February 1, 1996 between Watsco and Rheem, Comfort and Rheem agree that the
Agreement shall be deemed to be modified and shall be modified as follows:
<PAGE>
10.1 The Agreement shall terminate in the event that Rheem impedes the
long-term competitiveness of Comfort in terms of quality, price or delivery as
determined in accordance with the dispute resolution procedures which are
outlined and provided for in Section 10.3 herein.
10.2 "Specific performance" shall be available and permitted in the
event of any irreconcilable violation of the Agreement.
10.3 The following dispute resolution procedures shall govern, in the
order of priority set forth below, in the event there is an irreconcilable
dispute between Watsco and Rheem with respect to the Agreement.
(a) The chief executive officers of Watsco and Rheem shall attempt in
good faith, to resolve the dispute during the ten (10) day period following the
date on which such dispute becomes irreconcilable.
(b) In the event that the chief executive officers of Watsco and Rheem
are unable to resolve the dispute within such ten (10) day period, the dispute
shall be submitted to an independent third party mediator to be agreed upon by
the chief executive officers of Watsco and Rheem (or the managing partner of the
Washington, D.C. offices of Price Waterhouse and Company or another "big six"
accounting firm that is not used by or associated with either Rheem or Watsco in
the event that the chief executive officers of Watsco and Rheem are unable to
agree upon an independent third party mediator).
(c) In the event that Watsco or Rheem fails to implement the decision
made by the mediator in respect of the dispute within ten (10) days of such
decision, the other party shall have the right to a confession of judgment to
implement the decision of the mediator. Each of Watsco and Rheem hereby agree to
take any and all actions, and to cooperate with the other in any reasonably
requested manner, necessary to obtain any such confession of judgment."
THIRD: Except as amended, modified or revised hereby, all provisions of the
Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this Amendment Agreement
to be executed as of the date first written above.
RHEEM MANUFACTURING COMPANY
Air Conditioning Division
BY: /s/ ROSS W. WILLIS
---------------------------
ATTEST: President
/s/ VINCENT J. DEBO
- --------------------
Assistant Secretary
COMFORT SUPPLY, INC.
BY: /s/ ERIC A. YOUNG
---------------------------
President
ATTEST:
/s/ RONALD P. NEWMAN
- --------------------
Secretary
3
EXHIBIT 10.13
THIS AMENDMENT AGREEMENT made as of the 6th day of February 1996 by and
between Rheem Manufacturing Company, Air Conditioning Division (hereinafter
referred to as "Rheem") and Heating & Cooling Supply, Inc. (hereinafter referred
to as "Heating & Cooling").
W I T N E S S E T H :
WHEREAS, Rheem and Heating & Cooling are parties to a distributor agreement
dated the 15th day of October, 1990 (the "Agreement"); and
WHEREAS, Rheem and Heating & Cooling agree to amend the Agreement on the
terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth together with other good and
valuable consideration, receipt hereof is hereby by each party acknowledged, the
parties hereto covenant and agree, each with the other, as follows:
FIRST: The Agreement shall be amended by deleting Article 3 in its entirety
and inserting the following in lieu thereof:
"3. TERM. Unless otherwise sooner terminated as provided herein, this
Agreement shall terminate on February 1, 2006 , and shall be automatically
extended for additional one (1) year periods on an "evergreen" basis.
SECOND: The following shall be inserted as Section 10 of the Agreement as
follows:
"10. CERTAIN OTHER MODIFICATIONS, DISPUTE RESOLUTION PROCEDURES. Upon
the termination of the "Put" and "Call" obligations contained in Section 3 of
the Subscription and Shareholders' Agreement dated as of the 14th day of
October, 1990 among MCS Acquisition Inc., Watsco, Inc. ("Watsco") and Rheem
Manufacturing Company ("Rheem") and Section 5.2 of a Stock Exchange Agreement
dated as of February 1, 1996 between Watsco and Rheem, Heating & Cooling and
Rheem agree that the Agreement shall be deemed to be modified and shall be
modified as follows:
<PAGE>
10.1 The Agreement shall terminate in the event that Rheem impedes the
long-term competitiveness of Heating & Cooling in terms of quality, price or
delivery as determined in accordance with the dispute resolution procedures
which are outlined and provided for in Section 10.3 herein.
10.2 "Specific performance" shall be available and permitted in the
event of any irreconcilable violation of the Agreement.
10.3 The following dispute resolution procedures shall govern, in the
order of priority set forth below, in the event there is an irreconcilable
dispute between Watsco and Rheem with respect to the Agreement.
(a) The chief executive officers of Watsco and Rheem shall attempt in
good faith, to resolve the dispute during the ten (10) day period following the
date on which such dispute becomes irreconcilable.
(b) In the event that the chief executive officers of Watsco and Rheem
are unable to resolve the dispute within such ten (10) day period, the dispute
shall be submitted to an independent third party mediator to be agreed upon by
the chief executive officers of Watsco and Rheem (or the managing partner of the
Washington, D.C. offices of Price Waterhouse and Company or another "big six"
accounting firm that is not used by or associated with either Rheem or Watsco in
the event that the chief executive officers of Watsco and Rheem are unable to
agree upon an independent third party mediator).
(c) In the event that Watsco or Rheem fails to implement the decision
made by the mediator in respect of the dispute within ten (10) days of such
decision, the other party shall have the right to a confession of judgment to
implement the decision of the mediator. Each of Watsco and Rheem hereby agree to
take any and all actions, and to cooperate with the other in any reasonably
requested manner, necessary to obtain any such confession of judgment."
THIRD: Except as amended, modified or revised hereby, all provisions of the
Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this Amendment Agreement
to be executed as of the date first written above.
RHEEM MANUFACTURING COMPANY
Air Conditioning Division
BY: /s/ ROSS W. WILLIS
---------------------------
ATTEST: President
/s/ VINCENT J. DEBO
- --------------------
Assistant Secretary
HEATING & COOLING SUPPLY, INC.
BY: /s/ DONALD H. HUSLAGE
---------------------------
President
ATTEST:
/s/ RONALD P. NEWMAN
- --------------------
Secretary
3
Exhibit 11
WATSCO, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the Years Ended December 31,
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
1995 1994 (1) 1993 (1)
--------- --------- ---------
<S> <C> <C> <C>
Net Income $7,250 $5,762 $5,041
Less subsidiary preferred stock dividend (130) (130) (70)
--------- --------- ---------
Income applicable to common stock
for primary earnings per share 7,120 5,632 4,971
Add interest expense, net of income
tax effects, attributable to assumed
conversion of convertible debentures 108 121 206
--------- --------- ---------
Income applicable to common stock
for fully diluted earnings per share $7,228 $5,753 $5,177
========= ========= =========
Weighted average common shares
outstanding 6,197,297 6,107,275 5,744,052
Dilutive stock options and warrant 384,952 218,853 124,530
--------- --------- ---------
Shares for primary earnings per share 6,582,249 6,326,128 5,868,582
Assumed conversion of debentures 240,522 267,561 470,461
Additional dilution of stock options
and warrant 147,833 52,573 -
--------- --------- ---------
Shares for fully diluted earnings per
share 6,970,604 6,646,262 6,339,043
========= ========= =========
Net income per primary share $1.08 $.89 $.85
===== ==== ====
Net income per fully diluted share $1.04 $.87 $.82
===== ==== ====
</TABLE>
(1) The share amounts for 1994 and 1993 have been restated to reflect a
three-for-two stock split effected in the form of a 50% dividend paid by the
Company on May 15, 1995.
EXHIBIT 13
<TABLE>
<CAPTION>
WATSCO, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA - FIVE YEAR SUMMARY
YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) 1995 1994 1993 (1) 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Revenues $331,008 $283,731 $230,656 $194,633 $169,318
============================================================================================================
Income before income
taxes and minority interests $ 14,070 $ 12,028 $ 10,147 $ 7,134 $ 4,973
Income taxes (5,234) (4,630) (3,819) (2,746) (1,973)
Minority interests (1,586) (1,636) (1,287) (1,470) (1,010)
- ------------------------------------------------------------------------------------------------------------
Net income $ 7,250 $ 5,762 $ 5,041 $ 2,918 $ 1,990
============================================================================================================
SHARE DATA (2)
Net income per share:
Primary $1.08 $.89 $.85 $.70 $.50
Fully diluted 1.04 .87 .82 .64 .48
Cash dividends declared per share:
Common Stock $.19 $.17 $.16 $.15 $.22
Class B Common Stock .19 .17 .16 .14 .20
Common stock outstanding 6,282,217 6,150,735 6,084,576 4,397,137 3,920,308
============================================================================================================
BALANCE SHEET INFORMATION
Total assets $144,884 $119,664 $109,685 $ 81,138 $ 81,767
============================================================================================================
Long-term obligations:
Bank and other debt $ 3,818 $ 2,719 $ 3,672 $ 3,979 $ 4,619
Subordinated notes 2,500 2,500 2,500 5,500 5,500
Convertible subordinated debentures - 1,505 1,676 4,060 4,711
- ------------------------------------------------------------------------------------------------------------
$ 6,318 $ 6,724 $ 7,848 $ 13,539 $ 14,830
============================================================================================================
Shareholders' equity $ 53,756 $ 46,816 $ 41,754 $ 25,272 $ 20,832
============================================================================================================
</TABLE>
(1) AMOUNTS FOR 1993 INCLUDE THE NON-RECURRING RECEIPT OF INSURANCE PROCEEDS
FOR BUSINESS INTERRUPTION CLAIMS FOLLOWING HURRICANE ANDREW, WHICH HAD THE
EFFECT OF INCREASING INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS BY
$1,130,000 AND NET INCOME BY $706,000. EXCLUDING THIS ITEM, FULLY DILUTED
EARNINGS PER SHARE WAS $.71 ($.73 PRIMARY).
(2) SHARE DATA FOR YEARS PRIOR TO 1992 INCLUDES THE EFFECT OF A 5% STOCK
DIVIDEND PAID IN 1992. SHARE DATA FOR YEARS PRIOR TO 1995 ALSO INCLUDES THE
EFFECT OF A THREE-FOR-TWO STOCK SPLIT EFFECTED MAY 15, 1995.
1
<PAGE>
WATSCO, INC. AND SUBSIDIARIES
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 three years ended December 31, 1995, 1994 and 1993,
expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
1995 1994 1993 (1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0%
Cost of sales and direct
service expenses 77.9 77.7 77.5
- ----------------------------------------------------------------------------------
Gross profit 22.1 22.3 22.5
Selling, general and
administrative expenses 16.7 17.0 17.6
- ----------------------------------------------------------------------------------
Operating income 5.4 5.3 4.9
Investment income, net .1 - .2
Interest expense 1.2 1.1 1.2
Income taxes 1.6 1.6 1.4
Minority interests .5 .6 .6
- ----------------------------------------------------------------------------------
Net income 2.2% 2.0% 1.9%
==================================================================================
</TABLE>
(1) EXCLUDES NON-RECURRING INCOME FROM THE RECEIPT OF INSURANCE PROCEEDS RELATED
TO HURRICANE ANDREW.
The following narratives include the results of operations of wholesale
distributors of air conditioners and related parts and supplies acquired during
1993 and 1995: Comfort Supply, Inc., acquired in May 1993; Air Conditioning
Sales, Inc., acquired in June 1993; Airite, Inc., acquired in February 1995;
H.B. Adams, Inc., acquired in March 1995; Environmental Equipment & Supplies,
Inc., acquired in May 1995 and Central Air Conditioning Distributors, Inc.,
acquired in October 1995. The acquisitions were accounted for under the purchase
method of accounting and, accordingly, the results of their operations have been
included in the consolidated results of the Company beginning on their
respective dates of acquisition.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995
WITH YEAR ENDED DECEMBER 31, 1994
Revenues in 1995 increased $47.3 million, or 17%, over 1994. The distribution
subsidiaries' revenues increased $46.4 million, or 20%. Excluding the effect of
acquisitions, revenues for the distribution subsidiaries increased $18.8
million, or 8%. This increase in sales was mainly due to increased sales of
replacement air conditioners in Florida and Texas. Revenues in the Company's
manufacturing operations decreased $874,000, or 4%, primarily due to lower sales
to original equipment manufacturers (OEMs) caused by higher levels of inventory
held by distributors during the year. Revenues in the personnel services
operations increased $1.8 million, or 6%, reflecting higher demand for temporary
help services and greater customer acceptance of new product offerings such as
professional staffing and technical temporaries.
Gross profit in 1995 increased $10.1 million, or 16%, over the prior year.
Excluding the effect of acquisitions, gross profit increased $3.7 million, or
6%, primarily as a result of the increase in revenues described above. Gross
profit margin decreased from 22.3% in 1994 to 22.1% in 1995 with acquisitions
having no impact on gross profit margin. These decreases were primarily due to
the increased sale of lower margin products by the distribution subsidiaries and
new product start-up costs in the manufacturing operations.
2
<PAGE>
Selling, general and administrative expenses in 1995 increased $7.1 million,
or 15%, over 1994 primarily due to selling and delivery costs related to
increased sales. Excluding the effect of acquisitions, selling, general and
administrative expenses increased $2.5 million, or 5%, also due to revenue
increases. Selling, general and administrative expenses as a percent of revenues
decreased to 16.7% in 1995 from 17.0% in 1994, with 1995 acquisitions having no
effect on such percentage. This decrease was the result of a larger revenue base
over which to spread fixed costs.
Interest expense in 1995 increased $1.1 million, or 34%, over 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 effects of acquisitions, interest expense
increased $471,000, or 15%, primarily due to higher average monthly borrowings
and higher interest rates.
The effective income tax rate decreased to 37.2% in 1995 compared to 38.5% in
the prior year. The decrease was primarily the result of the proportionately
larger share of taxable income generated in lower tax rate states in 1995
compared to 1994.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994
WITH YEAR ENDED DECEMBER 31, 1993
Revenues in 1994 increased $53.1 million, or 23%, over 1993. The distribution
subsidiaries' revenues increased $48.3 million, or 27%. Excluding the effect of
acquisitions, revenues for the distribution subsidiaries increased $28.6
million, or 16%. This increase in sales was mainly due to hot weather in the
western market, strong replacement sales in Florida and increased export sales.
Revenues in the Company's manufacturing operations increased $2.1 million, or
10%, primarily due to the introduction of new products. Revenues in the
personnel services segment increased $2.7 million, or 10%, reflecting greater
demand for temporary help services.
Gross profit in 1994 increased $11.3 million, or 22%, over the prior year.
Excluding the effect of acquisitions, gross profit increased $7.3 million, or
14%, primarily as a result of the increase in revenues described above. Gross
profit margin decreased from 22.5% in 1993 to 22.3% in 1994 with acquisitions
not changing gross profit margin significantly.
Selling, general and administrative expenses in 1994 increased $7.6 million,
or 19%, over the prior year, primarily due to the full year effect of the 1993
acquisitions. Excluding the effect of acquisitions, selling, general and
administrative expenses increased $4.0 million, or 10%, from the prior year due
to increased selling costs caused by increased sales. As a percentage of
revenues, selling, general and administrative expenses decreased from 17.6% in
1993 to 16.9% in 1994. This decrease was the result of a larger revenue base
over which to spread fixed costs.
Other income in 1993 includes the non-recurring receipt of insurance proceeds
of $1.1 million for business interruption claims related to Hurricane Andrew.
Interest expense in 1994 increased $399,000, or 14%, from the prior year due
to higher borrowings from acquired businesses and interest rate increases during
1994.
The effective income tax rate in 1994 increased to 38.5% compared to 37.6% in
the prior year. The increase was primarily a result of the proportionately
larger share of taxable income generated in higher tax rate states in 1994
compared to 1993.
3
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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. At
December 31, 1995, the Company's subsidiaries had aggregate borrowing
commitments from lenders of $72.0 million, of which $17.6 million was unused and
available. The weighted average interest rate for these commitments was 6.7% at
December 31, 1995. The total amount of borrowing commitments expiring in 1996 is
$12.0 million. In February 1996, the Company received a proposal from one of its
lenders to syndicate a master $125 million unsecured revolving credit facility.
This facility would replace all of the Company's existing revolving credit
facilities and provide the Company up to $53 million of additional availability
to fund future growth.
Certain 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.
Working capital increased to $41.2 million at December 31, 1995 from $40.1
million at December 31, 1994 due to higher levels of accounts receivable caused
by higher sales volume and increased cash flow which lowers the amount of
inventory financed by revolving credit facilities.
Cash and cash equivalents increased $2.0 million in 1995. Principal sources
of cash in 1995 were profitable operations, increased borrowings under revolving
credit agreements and proceeds from sales of marketable securities, primarily
consisting of tax-free municipal bonds. The principal uses of cash were to fund
acquisitions, finance capital expenditures, pay dividends and fund working
capital needs.
In March 1996, the Company completed the sale of 1,570,000 shares of Common
Stock and received net proceeds of $32.6 million. The Company intends to use
approximately $14.0 million of the proceeds to acquire Three States Supply
Company, Inc. as discussed below. The Company anticipates using the remainder of
the net proceeds to fund other potential acquisitions, to reduce debt and for
general corporate purposes.
The Company has signed a letter of intent for the purchase of the net assets
and business of Three States Supply Company, Inc., a Memphis, Tennessee-based
distributor of building materials used primarily in the heating and air
conditioning industry. The completion of the transaction is subject to certain
conditions and is expected to occur during April 1996. The purchase price,
estimated at $14 million, is subject to adjustment upon completion of an audit
and will be funded by a portion of the proceeds from the recent sale of the
Company's Common Stock.
The Company continually evaluates potential acquisitions and has had
discussions with a number of acquisition candidates; however, the Company has no
agreement with respect to any acquisition candidates other than Three States.
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.
ACQUISITION OF MINORITY INTERESTS
In March 1996, pursuant to a Stock Exchange Agreement and Plan of
Reorganization (the "Exchange Agreement") with Rheem Manufacturing Company
("Rheem"), the Company acquired Rheem's minority ownership interests in three of
the Company's distribution subsidiaries in exchange for 964,361 shares of
unregistered Common Stock of the Company having an estimated fair value of $16.1
million. Accordingly, following this transaction, all of the Company's
distribution companies are wholly-owned subsidiaries of the Company.
4
<PAGE>
NEW ACCOUNTING STANDARDS
During 1995, the Company adopted Statement of Accounting Standards No. 119,
"Disclosures about Derivative Financial Instruments and Fair Value of Financial
Instruments" ("SFAS No. 119"). The disclosures required by SFAS No. 119 are
shown in Note 10 of the Company's 1995 consolidated financial statements.
In March 1995, the FASB issued SFAS No. 121, "Accounting for Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than their carrying
amount. The Company is required to adopt the provisions of SFAS No. 121
beginning in 1996. The Company will adopt SFAS No. 121 in the first quarter of
1996 and, based on current circumstances, does not expect the adoption to have a
material effect on its consolidated financial position or results of operations.
In November 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 requires new disclosures and
provides guidance for new accounting methods related to employee stock-based
compensation plans. The Company expects to continue to account for its
stock-based compensation plans in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees", as allowed under SFAS No. 123. The
Company will adopt the new disclosure rules of SFAS No. 123 during 1996.
5
<PAGE>
<TABLE>
<CAPTION>
WATSCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $298,939 $253,433 $203,067
Service fees and royalties 32,069 30,298 27,589
- -------------------------------------------------------------------------------------------------
Total revenues 331,008 283,731 230,656
- -------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 233,089 197,397 157,213
Direct service expenses 24,621 23,122 21,513
Selling, general and
administrative expenses 55,288 48,169 40,540
- -------------------------------------------------------------------------------------------------
Total costs and expenses 312,998 268,688 219,266
- -------------------------------------------------------------------------------------------------
Operating income 18,010 15,043 11,390
- -------------------------------------------------------------------------------------------------
Other income (expense):
Investment income, net 281 140 383
Interest expense (4,221) (3,155) (2,756)
Insurance proceeds - - 1,130
- -------------------------------------------------------------------------------------------------
(3,940) (3,015) (1,243)
- -------------------------------------------------------------------------------------------------
Income before income taxes
and minority interests 14,070 12,028 10,147
Income taxes (5,234) (4,630) (3,819)
Minority interests (1,586) (1,636) (1,287)
- -------------------------------------------------------------------------------------------------
Net income $ 7,250 $ 5,762 $ 5,041
=================================================================================================
Earnings per share:
Primary $ 1.08 $.89 $.85
Fully diluted 1.04 .87 .82
=================================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
6
<PAGE>
<TABLE>
<CAPTION>
WATSCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,751 $ 1,744
Marketable securities 267 3,227
Accounts receivable, net 43,564 34,811
Inventories 59,724 49,259
Prepaid expenses and other current assets 5,073 4,608
- ----------------------------------------------------------------------------------------------------------
Total current assets 112,379 93,649
- ----------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 11,286 8,829
Intangible assets, net 16,995 13,164
Other assets 4,224 4,022
- ----------------------------------------------------------------------------------------------------------
$144,884 $119,664
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations $ 2,455 $ 1,781
Short-term promissory notes 4,250 -
Borrowings under revolving credit agreements 40,185 32,034
Accounts payable 17,229 13,108
Accrued liabilities 7,091 6,631
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 71,210 53,554
- ----------------------------------------------------------------------------------------------------------
Long-term Obligations:
Bank and other debt 3,818 2,719
Subordinated note 2,500 2,500
Convertible subordinated debentures - 1,505
- ----------------------------------------------------------------------------------------------------------
6,318 6,724
- ----------------------------------------------------------------------------------------------------------
Deferred income taxes 978 713
- ----------------------------------------------------------------------------------------------------------
Minority interests 12,622 11,857
- ----------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 2 and 11) _
Shareholders' Equity:
Common Stock, $.50 par value, 4,801,536 and 4,658,010 shares
issued and outstanding in 1995 and 1994, respectively 2,401 2,329
Class B Common Stock, $.50 par value, 1,480,681 and 1,492,725 shares
issued and outstanding in 1995 and 1994, respectively 740 746
Paid-in capital 19,479 18,565
Retained earnings 31,136 25,176
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 53,756 46,816
- ----------------------------------------------------------------------------------------------------------
$144,884 $119,664
==========================================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE BALANCE SHEETS.
7
<PAGE>
<TABLE>
<CAPTION>
WATSCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Paid-in Retained
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) SHARES AMOUNT CAPITAL EARNINGS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 4,397,138 $2,199 $6,576 $16,497
Conversion of debentures
into Common Stock 444,009 222 2,385
Issuance of Common Stock 1,200,000 600 8,895
Contribution to 401(k) plan 12,847 6 105
Exercise of stock options 30,582 15 170
Common stock cash dividends,
$.16 per share of Common Stock and
$.16 per Class B share (887)
Dividends on 6.5% Series A
preferred stock of subsidiary (70)
Net income 5,041
- ----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 6,084,576 3,042 18,131 20,581
Conversion of debentures
into Common Stock 28,330 14 178
Contribution to 401(k) plan 12,680 6 131
Exercise of stock options 25,149 13 125
Common stock cash dividends,
$.17 per share of Common Stock and
$.17 per Class B share (1,037)
Dividends on 6.5% Series A
preferred stock of subsidiary (130)
Net income 5,762
- ----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 6,150,735 3,075 18,565 25,176
Conversion of debentures
into Common Stock 24,403 12 152
Contribution to 401(k) plan 9,042 5 144
Exercise of stock options and warrant 98,037 49 618
Common stock cash dividends,
$.19 per share of Common Stock and
$.19 per Class B share (1,160)
Dividends on 6.5% Series A
preferred stock of subsidiary (130)
Net income 7,250
- ----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 6,282,217 $3,141 $19,479 $31,136
==========================================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
8
<PAGE>
<TABLE>
<CAPTION>
WATSCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,250 $ 5,762 $ 5,041
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,994 2,345 1,849
Provision for doubtful accounts 1,197 597 315
Net investment gains (27) (6) (161)
Deferred income tax benefit (25) (237) (455)
Noncash stock contribution to 40l(k) plan 149 137 111
Minority interests, net of dividends paid 765 304 549
Changes in operating assets and liabilities,
net of effects of acquisitions in 1995 and 1993:
Accounts receivable (3,207) (5,151) (1,155)
Inventories 644 (300) 1,462
Accounts payable and accrued liabilities 1,505 (797) (5,676)
Other, net (198) (229) (936)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,047 2,425 944
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Cash used in acquisitions, net of cash acquired (12,987) - (3,547)
Capital expenditures, net (4,248) (4,148) (2,994)
Net proceeds from sales (purchases) of
marketable securities 3,012 (2,258) (906)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,223) (6,406) (7,447)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of long-term obligations (555) (222) (3,874)
Net borrowings under revolving credit agreements 6,361 5,883 1,865
Net proceeds from issuances of common stock 667 138 9,680
Cash dividends (1,290) (1,167) (957)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,183 4,632 6,714
- ----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 2,007 651 211
Cash and cash equivalents at beginning of year 1,744 1,093 882
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,751 $ 1,744 $ 1,093
==========================================================================================================
Supplemental disclosures:
Income taxes paid $ 4,999 $ 4,709 $ 5,215
Interest paid 4,186 3,149 3,056
==========================================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
9
<PAGE>
WATSCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Watsco, Inc. ("Watsco") and its subsidiaries (the "Company") is the largest
distributor of residential central air conditioners and supplies in the United
States, with leading positions in Florida, Texas and California, the three
largest air conditioning markets in the country, as well as significant
positions in Alabama, Arkansas, Louisiana, Nevada and North Carolina. The
Company is also a manufacturer of electronic and mechanical components for air
conditioning, heating and refrigeration equipment that are sold to wholesale
distributors and original equipment manufacturers (OEMs). In addition, the
Company operates Dunhill Personnel System, Inc., a nationwide provider of
temporary help and permanent placement services.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Watsco, Inc.
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company's consolidated subsidiaries
that are less than wholly-owned include 80% equity interests in Gemaire
Distributors, Inc. ("Gemaire") and Comfort Supply, Inc. ("Comfort Supply"), and
a 50% equity interest (with an option to increase the equity interest to 50.25%)
in Heating & Cooling Supply, Inc. ("Heating & Cooling"). Minority interests in
the accompanying consolidated financial statements include the portions of net
income and equity of Gemaire, Comfort Supply and Heating & Cooling owned by
Rheem Manufacturing Company ("Rheem"). Effective March 19, 1996, Watsco acquired
Rheem's minority interests in these subsidiaries (see Note 13).
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of products for its
manufacturing and distribution businesses and upon delivery of services for its
personnel services business.
INVENTORIES
The Company's inventories are stated at lower of cost (first-in, first-out
method, FIFO) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation of property,
plant and equipment is provided on the straight-line method. Buildings and
improvements are being depreciated over estimated useful lives ranging from 5-40
years. Estimated useful lives for other depreciable assets range from 3-10
years.
INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization of $2,040,000 and
$1,639,000 at December 31, 1995 and 1994, respectively, consists primarily of
goodwill arising from the excess of the cost of acquired businesses over the
fair value of their tangible net assets. Goodwill is amortized on a
straight-line basis over 40 years. The Company periodically reviews goodwill
based upon expectations of undiscounted cash flows and operating income to
assess whether recorded amounts are fully recoverable. Amortization expense
related to goodwill amounted to $401,000, $364,000 and $358,000 in 1995, 1994
and 1993, respectively.
INCOME TAXES
During 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). This statement requires
the asset and liability approach for financial accounting and reporting for
income taxes. The adoption of SFAS No. 109 did not have a material effect on the
consolidated financial position of the Company during 1993. Under SFAS No. 109,
deferred tax assets and liabilities reflect the future tax consequences of the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
10
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". The adoption of this statement did not have a material
effect on the Company's consolidated operating results or financial position in
1994. At December 31, 1995 and 1994, marketable securities consists primarily of
tax exempt municipal bonds and equity securities and have been classified as
"available for sale" securities by the Company. At December 31, 1995 and 1994,
the cost of such securities approximates market value.
DERIVATIVE FINANCIAL INSTRUMENT
In order to manage the risk of movements in interest rates that affect the
cost of borrowings under revolving credit agreements, the Company has entered
into an interest rate hedge agreement which involves the exchange of fixed and
floating rate interest payments periodically over the life of the agreement
without the exchange of the underlying principal amounts. The differential to be
paid or received is accrued as interest rates change and is recognized over the
life of the agreements as an adjustment to interest expense.
USE OF ESTIMATES
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
EARNINGS PER SHARE
Primary 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 and common stock equivalents. Fully diluted
earnings per share additionally assumes, if dilutive, conversion of the 10%
Convertible Subordinated Debentures due 1996, with earnings being increased for
interest expense, net of income taxes, that would not have been incurred had
conversion taken place at the beginning of the year and any added dilution from
common stock equivalents.
Shares used to calculate earnings per share (restated in 1993 and 1994 to
reflect a three-for-two stock split effected May 15, 1995, see Note 9) are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding 6,197,297 6,107,275 5,744,052
Dilutive stock options and warrants 384,952 218,853 124,530
- ---------------------------------------------------------------------------------------------
Shares for primary earnings per share 6,582,249 6,326,128 5,868,582
Assumed conversion of debentures 240,522 267,561 470,461
Additional dilution of stock options
and warrants 147,833 52,573 -
- ---------------------------------------------------------------------------------------------
Shares for fully diluted earnings per share 6,970,604 6,646,262 6,339,043
=============================================================================================
</TABLE>
2. INVENTORIES
Inventories consists of (in thousands):
DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------
Raw materials $ 3,637 $ 4,058
Work-in-process 1,359 1,152
Finished goods 54,728 44,049
- -----------------------------------------------------------------------
$ 59,724 $ 49,259
=======================================================================
11
<PAGE>
Rheem is a major supplier to the Company under long-term distribution
agreements. Net purchases under these agreements were $130,752,000, $113,117,000
and $90,435,000, or 55%, 57% and 57% of the Company's aggregate purchases in
1995, 1994 and 1993, respectively. Included in accounts payable in the
consolidated balance sheets are amounts owed to Rheem totaling $7,224,000 and
$4,207,000 at December 31, 1995 and 1994, respectively. At December 31, 1995,
the Company had non-cancelable purchase commitments to Rheem of approximately
$23,384,000.
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consists of (in thousands):
DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------
Land and buildings $ 4,097 $ 4,023
Machinery and equipment 10,947 10,021
Furniture and fixtures 7,547 5,461
- -----------------------------------------------------------------------
22,591 19,505
Less: accumulated depreciation
and amortization (11,305) (10,676)
- -----------------------------------------------------------------------
$ 11,286 $ 8,829
=======================================================================
4. REVOLVING CREDIT AGREEMENTS
Borrowings under revolving credit agreements consist of (in thousands):
DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------
Variable-rate revolving note of
Gemaire $15,750 $ 7,400
Variable-rate revolving note of
Heating & Cooling 14,185 19,260
Variable-rate revolving note of
Comfort Supply 7,000 5,374
Variable-rate revolving note of Central
Air Conditioning Distributors, Inc. 3,250 -
- -----------------------------------------------------------------------
$40,185 $32,034
=======================================================================
Borrowings under the Gemaire revolving note, which expire in 1998, may not
exceed $27,000,000 and are subject to maintenance of certain levels of accounts
receivable and inventories. At Gemaire's option, interest is at 1-5/8% below the
bank's prime rate, payable quarterly, or at a fixed rate equal to the LIBOR rate
for a fixed duration plus .75%, payable at the end of the period. The note is
secured by substantially all of Gemaire's assets (with an aggregate carrying
value of $37,637,000 at December 31, 1995) and is without recourse to Watsco.
Borrowings under the Heating & Cooling revolving note, which expire in 1998,
may not exceed $25,000,000 and are subject to maintenance of certain levels of
accounts receivable and inventories. At Heating & Cooling's option, interest is
at 1/2% below the bank's prime rate or at a fixed rate equal to the LIBOR rate
plus .90% or the bank's certificate of deposit rate plus .90% or offshore rates
for deposits of similar duration and is payable monthly. The note is secured by
substantially all of Heating & Cooling's assets (with an aggregate carrying
value of $28,741,000 at December 31, 1995) and is without recourse to Watsco.
12
<PAGE>
Borrowings under the Comfort Supply revolving note, which expire in 1996, may
not exceed $12,000,000 and are subject to maintenance of certain levels of
accounts receivable and inventories. At Comfort Supply's option, interest is at
the bank's prime rate less 1-5/8% or at a fixed rate equal to the LIBOR rate
plus .75% and is payable monthly. The note is secured by substantially all of
Comfort Supply's assets (with an aggregate carrying value of $19,983,000 at
December 31, 1995) and is without recourse to Watsco. The Company expects to
extend or obtain replacement financing for the revolving note prior to its
expiration.
Borrowings under the Central Air Conditioning Distributors, Inc. ("CAC")
revolving note, which expire in 1998, may not exceed $8,000,000 and are secured
by all of CAC's outstanding common stock. At CAC's option, interest is at the
bank's prime rate less 1-5/8% or at a fixed rate equal to the LIBOR rate plus
.75%, and is payable quarterly. At December 31, 1995, available borrowings under
the CAC revolving credit agreement were reduced by $4,250,000 for standby
letters of credit that were used to collateralize short-term promissory notes
issued in connection with the acquisition of CAC (see Note 8). The standby
letters of credit expire during 1996, concurrent with the maturity of the
short-term promissory notes. Outstanding borrowings under CAC's revolving credit
agreement, including the amounts contingently liable, are guaranteed by Watsco.
The Company also has an unsecured $3,000,000 line of credit facility with a
bank expiring in May 1997. At the Company's option, borrowings under the
facility bear interest at the bank's prime rate less 1-5/8% or at a fixed rate
equal to the LIBOR rate plus .75%, and is payable quarterly. At December 31,
1995 and 1994, there were no outstanding borrowings under the facility.
The terms of the Gemaire, Heating & Cooling, Comfort Supply and CAC revolving
credit agreements restrict the transfer of their net assets and limit the
payment of dividends to their shareholders. At December 31, 1995, Watsco's
proportionate share of the aggregate net assets of Gemaire, Heating & Cooling,
Comfort Supply and CAC was $21,663,000 of which $5,282,000 was unrestricted.
At December 31, 1995 and 1994, the weighted average interest rate for the
borrowings under revolving credit agreements was 6.7% and 7.6%, respectively.
During the years ended December 31, 1995, 1994 and 1993, the weighted average
rates were 7.3%, 6.7% and 5.7%, respectively.
5. LONG-TERM OBLIGATIONS
Bank and other debt (net of current portion) consists of (in thousands):
DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------
Mortgage note $ 888 $ 254
Variable-rate term note of Gemaire 900 1,300
Promissory notes of Comfort Supply 727 -
Other 1,303 1,165
- -----------------------------------------------------------------------
$3,818 $2,719
=======================================================================
The mortgage note is payable in monthly principal installments of $13,000
plus interest at a fixed rate of 8-1/4% and matures in 2002. The mortgage note
is secured by land and buildings with a net carrying value of $1,011,000 at
December 31, 1995.
The Gemaire note, which matures in 1999, is payable in quarterly installments
of $100,000, plus interest at a fixed rate of 5.8%. The note is secured along
with the amounts outstanding under Gemaire's revolving credit agreement (see
Note 4).
The promissory notes, issued in connection with certain acquisitions made by
Comfort Supply during 1995, bear interest at 8%, payable semi-annually, and
mature at varying dates through 2000.
The subordinated note represents an unsecured note payable to Rheem by
Heating & Cooling. The note bears interest at 12%, payable quarterly, and
matures in 1998.
13
<PAGE>
The Company's convertible subordinated debentures represent 10% Convertible
Subordinated Debentures due 1996 (the "Class B Debentures") that may be
converted into Class B Common Stock at $6.74 per share. The Company is required
to redeem any debentures that remain outstanding on September 12, 1996.
Redemption, at par plus accrued interest, may be made by the Company at any time
prior to such date. At December 31, 1995, Class B Debentures in the aggregate
principal amount of $1,505,000 (included in current portion of long-term
obligations in the accompanying consolidated balance sheet) were convertible
into Class B Common Stock. Directors and an affiliate of the Company owned
$1,414,500 and $1,567,500 of Class B Debentures at December 31, 1995 and 1994,
respectively. During 1995, 1994 and 1993, $164,000, $192,000 and $2,607,000,
respectively, of convertible subordinated debentures were converted into common
stock.
Annual maturities of long-term obligations for the years subsequent to
December 31, 1995 are as follows: $2,455,000 in 1996; $881,000 in 1997;
$3,238,000 in 1998; $415,000 in 1999; $808,000 in 2000 and $976,000 thereafter.
6. INCOME TAXES
The income tax provision consists of (in thousands):
YEARS ENDED DECEMBER 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Federal $4,612 $3,991 $3,314
State 622 639 505
- -------------------------------------------------------------------------------
$5,234 $4,630 $3,819
===============================================================================
Current $5,259 $4,867 $4,274
Deferred (25) (237) (455)
- -------------------------------------------------------------------------------
$5,234 $4,630 $3,819
===============================================================================
A reconciliation of the provision for federal income taxes from the federal
statutory income tax rate to the effective income tax rate as reported is as
follows:
YEARS ENDED DECEMBER 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes,
net of federal benefit 2.9 3.5 3.3
Other, net .3 1.0 .3
- -----------------------------------------------------------------------------
37.2% 38.5% 37.6%
=============================================================================
14
<PAGE>
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities (in thousands):
DECEMBER 31, 1995 1994
- -------------------------------------------------------------------------------
Deferred tax assets:
Included in other current assets -
Accounts receivable reserves $ 1,052 $ 1,005
Capitalized inventory costs
and inventory reserves 2,023 1,860
Other 155 217
- -------------------------------------------------------------------------------
3,230 3,082
- -------------------------------------------------------------------------------
Included in other noncurrent assets -
Net operating loss carryforwards of subsidiary 789 868
Other 225 211
- -------------------------------------------------------------------------------
1,014 1,079
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Included in accrued liabilities -
Inventory (128) (157)
Other - (178)
- -------------------------------------------------------------------------------
(128) (335)
- -------------------------------------------------------------------------------
Included in noncurrent liabilities -
Depreciation and amortization (614) (397)
Other (364) (316)
- -------------------------------------------------------------------------------
(978) (713)
- -------------------------------------------------------------------------------
Total net deferred tax assets $ 3,138 $ 3,113
===============================================================================
A subsidiary of the Company has available net operating loss carryforwards
(NOLs) of approximately $2.3 million which are available to offset future
taxable income in equal annual amounts of approximately $232,000 through 2005.
SFAS No. 109 requires that the tax benefit of such NOLs be recorded as an asset
to the extent that management assesses the utilization of such NOLs to be more
likely than not. Management has determined, based on the subsidiary's recent
operating earnings and expectations for the future, that the recorded deferred
tax asset for the NOLs is presently realizable as the operating income of the
subsidiary will be sufficient to fully utilize the available NOLs. However, the
ultimate realizability of the deferred tax asset could be impacted in the near
term if estimates of the subsidiary's future taxable income during the
carryforward period are reduced.
7. STOCK OPTION AND BENEFIT PLANS
The Company has two stock option plans, the 1991 Stock Option Plan (the "1991
Plan") and the 1983 Executive Stock Option Plan (the "1983 Plan"). The Company
accounts for these plans in accordance with APB Opinion No. 25, Accounting for
Stock Issued to Employees, under which no compensation cost has been recognized.
A summary of these plans as of December 31, 1995 is as follows:
1991 PLAN. For directors, officers and key employees, under which options for
an aggregate of 1,372,500 shares of Common Stock and Class B Common Stock may be
granted. Options as to 974,348 shares of Common Stock and 373,388 shares of
Class B Common Stock have been granted. The terms of the plan require the option
price per share to be equivalent to fair market value. Options are for a term of
ten years and may be exercised as determined by the Option Committee of the
Board of Directors. The Option Committee may waive the vesting period and permit
options to be exercised immediately.
1983 PLAN. For directors, officers and key employees. This plan expired in
February 1993; therefore, no additional options may be granted. Options as to
46,909 shares of Common Stock and 7,403 shares of Class B Common Stock are
outstanding under this plan at December 31, 1995. Options are for a term of ten
years and, generally, may be exercised in annual 20% installments beginning one
year after grant. The Option Committee may waive the vesting period and permit
options to be exercised immediately.
15
<PAGE>
Summarized information for the above plans is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at
beginning of year 1,066,286 1,032,612 865,711
Granted 41,000 104,025 219,750
Exercised (30,737) (46,426) (31,144)
Canceled (20,553) (23,925) (21,705)
- ----------------------------------------------------------------------------------------
Options outstanding at
end of year 1,055,996 1,066,286 1,032,612
========================================================================================
Exercisable at end of year 536,902 791,788 533,685
========================================================================================
Available for future grant 24,765 50,013 120,738
========================================================================================
Average prices of
options exercised $6.59 $6.61 $5.00
========================================================================================
Price range of options $5.00 $5.00 $4.21
outstanding at end to to to
of year $16.50 $11.00 $10.67
========================================================================================
</TABLE>
The Company has profit sharing retirement plans for its employees which are
qualified under Section 401(k) of the Internal Revenue Code. The Company makes
varying annual matching contributions based on a percentage of eligible employee
compensation deferrals. The contributions are made in cash or by the issuance of
the Company's common stock to the plan on behalf of its employees. For the years
ended December 31, 1995, 1994 and 1993, aggregate contributions to these plans
were $265,000, $268,000 and $207,000, respectively.
Watsco has implemented a reverse split-dollar insurance program for its
officers providing Watsco with limited interests in the policies including death
benefits aggregating approximately $5 million plus any prepaid and unearned
premiums. Under the insurance program, the officers retain all incidents of
ownership in excess of the Company's limited interests. For the years ended
December 31, 1995, 1994 and 1993, the Company recorded expense of $53,000,
$49,000 and $45,000, respectively, related to this program.
The Company has a Key Executive Non-Qualified Deferred Compensation Plan. At
December 31, 1995, there were two individuals participating in this plan. For
the years ended December 31, 1995, 1994 and 1993, the Company recorded expense
of $65,000, $158,000 and $45,000, respectively, related to this plan.
8. ACQUISITIONS
1993 ACQUISITIONS
In April 1993, Watsco acquired 80% and Rheem acquired 20% of the common stock
of Comfort Supply, a Texas-based wholesale distributor of air conditioners and
related parts and supplies, for $4,022,000. The cash consideration paid by the
Company amounted to $3,418,000 and was made out of a portion of the proceeds
from the sale of Watsco's Common Stock completed in February 1993.
In June 1993, Heating & Cooling purchased the net assets and business of Air
Conditioning Sales, Inc. ("ACS"), a central California-based wholesale
distributor of air conditioners and related parts and supplies. Consideration
for the purchase included a cash payment of $211,000 to the seller and a cash
payment of $2,073,000 to an escrow account for the settlement of certain seller
obligations. In connection with the ACS acquisition, Heating & Cooling issued
$2,000,000 of its 6.5% Series A Preferred Stock (the "H&C Preferred Stock") to
Rheem in settlement of a like amount of accounts payable that was due to Rheem
by the seller. The H&C Preferred Stock is in preference to the common stock of
Heating & Cooling in any dissolution or winding up and may be redeemed at any
time at the option of Heating & Cooling. Cumulative dividends are paid annually
on January 1. The H&C Preferred Stock is included in minority interests in the
accompanying consolidated balance sheets.
16
<PAGE>
The 1993 acquisitions were accounted for under the purchase method of
accounting and, accordingly, the results of operations of the acquired companies
have been included in the consolidated statements of income beginning on the
dates of acquisition. The excess of the aggregate purchase price over the
tangible net assets acquired of $1,705,000 is being amortized on a straight-line
basis over 40 years. In connection with these acquisitions, the Company assumed
liabilities of $19,832,000.
1995 ACQUISITIONS
During 1995, the Company completed four separate acquisitions of wholesale
distributors of air conditioners and related parts and supplies for aggregate
consideration of $18,116,000. The acquisitions were made either in the form of
the purchase of all of the outstanding common stock or the purchase of the net
assets and business of the respective sellers. Payment of the consideration for
these acquisitions consisted of cash payments aggregating $13,008,000, the
issuance of short-term promissory notes of $4,250,000 and the issuance of
long-term promissory notes of $858,000. Cash payments were funded from existing
cash or from borrowings under revolving credit agreements. The short-term
promissory notes bear interest at 7% and mature during 1996. The long-term
promissory notes bear interest at 8% and mature at varying dates through 2000
(see Note 5).
The 1995 acquisitions were accounted for under the purchase method of
accounting and, accordingly, the results of operations of the acquired companies
have been included in the consolidated statements of income beginning on the
dates of acquisition. The excess of the aggregate purchase price over the
tangible net assets acquired of $4,232,000 is being amortized on a straight-line
basis over 40 years. In connection with these acquisitions, the Company assumed
liabilities of $4,891,000.
The unaudited pro forma information of the Company as if the 1995
acquisitions had occurred on January 1, 1994 is as follows (in thousands, except
per share data):
YEARS ENDED DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------
Revenues $354,371 $330,576
Net income $8,049 $6,018
Primary earnings per share $1.20 $.93
Fully diluted earnings per share $1.15 $.90
The unaudited pro forma information is not necessarily indicative of either
the results of operations that would have occurred had the above companies been
acquired on January 1, 1994 for the years presented or of future results of
operations.
17
<PAGE>
9. SHAREHOLDERS' EQUITY
The authorized capital stock of the Company is 40,000,000 shares of Common
Stock (redesignated from Class A Common Stock in June 1994) and 4,000,000 shares
of Class B Common Stock. Common Stock and Class B Common Stock share equally in
the earnings of the Company, and are identical in most other respects except (i)
Common Stock has limited voting rights, each share of Common Stock being
entitled to one vote on most matters and each share of Class B Common Stock
being entitled to ten votes; (ii) shareholders of Common Stock are entitled to
elect 25% of the Board of Directors (rounded up to the nearest whole number) and
Class B shareholders are entitled to elect the balance of the Board of
Directors; (iii) cash dividends may be paid on Common Stock without paying a
cash dividend on Class B Common Stock and no cash dividend may be paid on Class
B Common Stock unless at least an equal cash dividend is paid on Common Stock
and (iv) Class B Common Stock is convertible at any time into Common Stock on a
one for one basis at the option of the shareholder.
In February 1993, the Company completed the sale of 1,200,000 shares of
Common Stock resulting in net proceeds of $9,495,000.
On April 18, 1995, the Company's Board of Directors authorized, for both
classes of the Company's common stock, a three-for-two stock split effected in
the form of a 50% stock dividend payable on May 15, 1995 to shareholders of
record as of April 28, 1995. Shareholders' equity has been restated to give
retroactive effect to the stock split for all periods presented by reclassifying
from retained earnings or paid-in capital to the common stock accounts the par
value of the additional shares arising from the split. In addition, all
references in the consolidated financial statements and notes thereto to number
of shares, per share amounts, stock option data and market prices of both
classes of the Company's common stock have been restated.
10. FINANCIAL INSTRUMENTS
RECORDED FINANCIAL INSTRUMENTS
The Company's recorded financial instruments consist of cash and cash
equivalents, accounts receivable, marketable securities, short-term promissory
notes, the current portion of long-term obligations, the convertible
subordinated debentures, borrowings under revolving credit agreements, debt
instruments included in other long-term obligations and the H&C Preferred Stock.
At December 31, 1995, the fair values of cash and cash equivalents, accounts
receivable, marketable securities, short-term promissory notes and the current
portion of long-term obligations approximated their carrying values due to the
short-term nature of these instruments and based on available quoted market
prices. The estimated fair value of the other recorded financial instruments and
the related carrying amounts are as follows (in thousands):
CARRYING FAIR
DECEMBER 31, 1995 AMOUNT VALUE
- -----------------------------------------------------------
Borrowings under revolving
credit agreements $40,185 $40,185
Convertible subordinated debentures 1,505 3,908
Debt instruments included in
long-term obligations 5,643 6,125
H&C Preferred Stock 2,000 *
- -----------------------------------------------------------
* Not determinable
The fair values of borrowings under revolving credit agreements and debt
instruments included in long-term obligations are based upon interest rates
available to the Company for similar instruments with consistent terms and
remaining maturities. The fair value of the Company's convertible subordinated
debentures is based on the year end market price of the underlying shares of
Class B Common Stock. Management is unable to determine the fair value of the
H&C Preferred Stock as the security has no quoted market price and, because the
security contains certain unique terms, conditions, covenants and restrictions,
there are no identical securities that have quoted market prices.
18
<PAGE>
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
At December 31, 1995, the Company had an interest rate swap agreement
related to borrowings of $10 million to manage the net exposure to interest rate
changes related to a portion of its borrowings under revolving credit
agreements. The interest rate swap agreement, which expires in December 2000,
effectively converts a portion of the Company's LIBOR-based variable rate
borrowings into fixed rate borrowings. The impact of interest rate risk
management activities on 1995's results of operations and the carrying value and
related fair value of interest rate risk management transactions at December 31,
1995 is not material.
At December 31, 1995, the Company is contingently liable under standby
letters of credit aggregating $5.1 million that were used as collateral for
promissory notes issued in connection with certain acquisitions made during 1995
(see Note 8). The Company does not expect any material losses to result from the
issuance of the standby letters of credit because performance is not expected to
be required; accordingly, the estimated fair value of these instruments is zero.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company places its temporary cash investments with high
credit quality financial institutions and limits the amount of credit exposure
to any one financial institution or investment. Concentrations of credit risk
with respect to accounts receivable are limited due to the large number of
customers comprising the Company's customer base, and their dispersion across
many different geographical regions. The Company establishes and monitors an
allowance for doubtful accounts based on the credit risk of specific customers,
historical trends and other information. At December 31, 1995 and 1994, the
allowance for doubtful accounts was $3,101,000 and $2,681,000, respectively.
Although the Company believes its allowance is sufficient, the amount the
Company ultimately realizes could differ materially in the near-term from the
amount reported above.
11. COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Company is obligated under non-cancelable
operating leases of real property and equipment used in its operations for
minimum annual rentals as follows: $4,685,000 in 1996; $4,090,000 in 1997;
$2,957,000 in 1998; $2,229,000 in 1999; $1,388,000 in 2000 and $3,059,000
thereafter. Rental expense for the years ended December 31, 1995, 1994 and 1993
was $4,861,000, $4,026,000 and $3,584,000, respectively.
The Company is from time to time involved in routine litigation. Based on
the advice of legal counsel, the Company believes that such actions presently
pending will not have a material adverse impact on the Company's consolidated
financial position or results of operations.
19
<PAGE>
12. INDUSTRY SEGMENT INFORMATION
At December 31, 1995, the Company operated principally in two industry
segments. Operations in the Climate Control segment are conducted through the
Company's four distribution subsidiaries, Gemaire, Heating & Cooling, Comfort
Supply and CAC, which distribute residential central air conditioners. This
segment's operations also include the Watsco Components, Inc., Cam-Stat, Inc.
and Rho Sigma, Inc. subsidiaries which manufacture and sell air conditioning,
heating and refrigeration components and accessories to original equipment
manufacturers and the service and repair markets. Operations in the Personnel
Services segment are through Dunhill Personnel System, Inc., which provides
temporary help and permanent placement services throughout the United States and
Canada. There are no sales between industry segments. Operating income is total
revenues less operating expenses and unallocated corporate expenses.
Identifiable assets by industry are those assets that are used in the Company's
operations in each segment. Corporate assets consist primarily of cash and cash
equivalents, marketable securities and real property. Export sales totaled
approximately $8,944,000, $6,606,000 and $3,555,000 for the years ended December
31, 1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
CLIMATE PERSONNEL
(IN THOUSANDS OF DOLLARS) CONTROL SERVICES OTHER CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenues $298,939 $ 32,069 $ 331,008
============================================================================================================
Operating income $ 18,401 $ 1,370 $ 19,771
============================================================================
Interest expense (4,221)
Unallocated corporate expenses (1,761)
Investment income, net 281
- ------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interests $ 14,070
============================================================================================================
Identifiable assets $133,001 $ 9,025 $ 142,026
============================================================================
Corporate assets 2,858
- ------------------------------------------------------------------------------------------------------------
Total assets $ 144,884
============================================================================================================
Depreciation and amortization $ 2,446 $ 210 $338 $ 2,994
============================================================================================================
Capital expenditures, net $ 3,493 $ 395 $360 $ 4,248
============================================================================================================
YEAR ENDED DECEMBER 31, 1994
Revenues $253,433 $ 30,298 $ 283,731
============================================================================================================
Operating income $ 16,401 $ 1,216 $ 17,617
============================================================================
Interest expense (3,155)
Unallocated corporate expenses (2,574)
Investment income, net 140
- ------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interests $ 12,028
============================================================================================================
Identifiable assets $106,415 $ 7,952 $ 114,367
============================================================================
Corporate assets 5,297
- ------------------------------------------------------------------------------------------------------------
Total assets $ 119,664
============================================================================================================
Depreciation and amortization $ 1,851 $ 270 $224 $ 2,345
============================================================================================================
Capital expenditures, net $ 3,455 $ 316 $377 $ 4,148
============================================================================================================
YEAR ENDED DECEMBER 31, 1993
Revenues $203,067 $ 27,589 $ 230,656
============================================================================================================
Operating income $ 12,589 $ 422 $ 13,011
============================================================================
Insurance proceeds 1,130
Interest expense (2,756)
Unallocated corporate expenses (1,621)
Investment income, net 383
- ------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interests $ 10,147
============================================================================================================
Identifiable assets $ 99,628 $ 6,817 $ 106,445
============================================================================
Corporate assets 3,240
- ------------------------------------------------------------------------------------------------------------
Total assets $ 109,685
============================================================================================================
Depreciation and amortization $ 1,165 $ 150 $176 $ 1,491
============================================================================================================
Capital expenditures, net $ 2,470 $ 36 $488 $ 2,994
============================================================================================================
</TABLE>
20
<PAGE>
13. SUBSEQUENT EVENTS
On March 6, 1996, the Company completed the sale of 1,570,000 shares of
Common Stock resulting in net proceeds of $32,609,000. The Company intends to
use approximately $14 million of the proceeds in the pending acquisition of
Three States Supply Company, Inc., discussed below. The Company anticipates
using the remainder of the net proceeds for other potential acquisitions, to
reduce debt and for general corporate purposes.
Effective March 19, 1996, the Company and Rheem completed a transaction
pursuant to a Stock Exchange Agreement and Plan of Reorganization (the "Exchange
Agreement") whereby the Company acquired Rheem's 20% ownership interests in
Gemaire and Comfort Supply and Rheem's 50% ownership interest in Heating &
Cooling in exchange for 964,361 unregistered shares of the Company's Common
Stock having an estimated fair value of $16.1 million. The H&C Preferred Stock
was not purchased by the Company in this transaction and will continue to be
outstanding. The acquisition of Rheem's ownership interests will be accounted
for under the purchase method of accounting and, accordingly, the effects of the
transaction will be included in the Company's results of operations as of the
transaction date. Previous agreements between the Company and Rheem provided
Rheem with the right to "call" from the Company and the Company with the right
to "put" to Rheem the Company's ownership interests in Gemaire, Comfort Supply
and Heating & Cooling. Under the terms of the Exchange Agreement, the put/call
provisions included in the previous agreements are effectively eliminated
because the rights to "put" or "call" become exercisable primarily upon the
occurrence of certain events of insolvency.
Following the aforementioned sale of Common Stock and the issuance of shares
pursuant to the Exchange Agreement, the unaudited pro forma shareholders' equity
of the Company as if these transactions had occurred on December 31, 1995 in
comparison to the historical amount reported is as follows (in thousands):
YEAR ENDED DECEMBER 31,1995 PRO FORMA HISTORICAL
- --------------------------------------------------------------------------------
Common Stock, $.50 par value, 7,485,897 shares
issued and outstanding, pro forma
(4,801,536 shares, historical) $ 3,743 $ 2,401
Class B Common Stock, $.50 par value,
1,480,681 shares issued and outstanding
(pro forma and historical) 740 740
Paid-in capital 68,121 19,479
Retained earnings 31,136 31,136
- --------------------------------------------------------------------------------
Total shareholders' equity $103,740 $53,756
- --------------------------------------------------------------------------------
The Company has signed a letter of intent for the purchase of the net assets
and business of Three States Supply Company, Inc., a Memphis, Tennessee-based
distributor of building materials used primarily in the heating and air
conditioning industry. The completion of the transaction is subject to certain
conditions. The purchase price, estimated at $14 million, is subject to
adjustment upon the completion of an audit of the net assets and will be made
out of a portion of the proceeds from the sale of Watsco's Common Stock
completed on March 6, 1996.
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Watsco, Inc.:
We have audited the accompanying consolidated balance sheets of Watsco, Inc.
(a Florida corporation) and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Watsco, Inc. and subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 29, 1996.
22
<PAGE>
<TABLE>
<CAPTION>
WATSCO, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) 1ST 2ND 3RD 4TH
(UNAUDITED) QUARTER QUARTER QUARTER QUARTER TOTAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Revenues $60,321 $91,062 $98,807 $80,818 $331,008
Gross profit 14,735 20,144 21,668 16,751 73,298
Net income 901 2,301 2,831 1,217 7,250
==========================================================================================================
Earnings per share(3):
Primary $.14 $.35 $.42 $.17 $1.08
Fully diluted .13 .34 .41 .17 1.04
==========================================================================================================
YEAR ENDED DECEMBER 31, 1994:
Revenues $55,252 $75,827 $82,805 $69,847 $283,731
Gross profit 13,218 16,717 18,731 14,546 63,212
Net income 690 1,926 2,307 839 5,762
==========================================================================================================
Earnings per share(2)(3):
Primary $.11 $.30 $.36 $.13 $.89
Fully diluted .11 .29 .35 .13 .87
==========================================================================================================
YEAR ENDED DECEMBER 31, 1993:
Revenues $38,652 $59,546 $72,474 $59,984 $230,656
Gross profit 9,031 13,732 16,094 13,073 51,930
Net income 343 2,216 1,830 652 5,041
==========================================================================================================
Earnings per share(2)(3):
Primary $.07 $.37(1) $.29 $.10 $.85
Fully diluted .07 .35(1) .28 .10 .82
==========================================================================================================
</TABLE>
(1) THE SECOND QUARTER OF 1993 INCLUDES THE NON-RECURRING RECEIPT OF INSURANCE
PROCEEDS FOR BUSINESS INTERRUPTION CLAIMS MADE BY THE COMPANY FOLLOWING
HURRICANE ANDREW, WHICH HAD THE EFFECT OF INCREASING NET INCOME BY
$706,000. EXCLUDING THIS ITEM, FULLY DILUTED AND PRIMARY EARNINGS PER SHARE
WERE $.25 FOR THE SECOND QUARTER OF 1993 AND FULLY DILUTED EARNINGS PER
SHARE WAS $.71 ($.73 PRIMARY) FOR THE YEAR ENDED DECEMBER 31, 1993.
(2) EARNINGS PER SHARE INFORMATION HAS BEEN RESTATED TO GIVE EFFECT TO A THREE-
FOR-TWO STOCK SPLIT EFFECTED ON MAY 15, 1995.
(3) QUARTERLY EARNINGS PER SHARE ARE CALCULATED ON AN INDIVIDUAL BASIS AND,
BECAUSE OF ROUNDING AND CHANGES IN THE WEIGHTED AVERAGE SHARES OUTSTANDING
DURING THE YEAR, THE SUMMATION OF EACH QUARTER MAY NOT EQUAL THE AMOUNT
CALCULATED FOR THE YEAR AS A WHOLE.
23
<PAGE>
WATSCO, INC. AND SUBSIDIARIES
INFORMATION ON COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol WSO and its Class B Common Stock is traded on the American Stock Exchange
under the symbol WSOB. The following table indicates the high and low prices of
the Company's Common Stock and Class B Common Stock, as reported by the New York
Stock Exchange and American Stock Exchange, respectively, and dividends paid per
share for each quarter during the years ended December 31, 1995, 1994 and 1993.
Stock prices and cash dividends per share have been adjusted for a three-for-two
stock split effected by the Company on May 15, 1995. At March 15, 1996,
excluding shareholders with stock in street name, the Company had approximately
600 Common Stock shareholders of record and 400 Class B shareholders of record.
<TABLE>
<CAPTION>
COMMON CLASS B CASH DIVIDENDS
HIGH LOW HIGH LOW COMMON CLASS B
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Fourth quarter $17-7/8 $16-3/8 $17-1/2 $16 $.050 $.050
Third quarter 17-3/8 13-3/8 16-3/4 13-1/2 .050 .050
Second quarter 13-3/4 11-3/4 13-1/2 11-5/8 .043 .043
First quarter 11-7/8 10-1/2 11-5/8 10-5/8 .043 .043
==============================================================================================
YEAR ENDED DECEMBER 31, 1994:
Fourth quarter $11-1/8 $10-3/8 $11 $10-1/4 $.043 $.043
Third quarter 11-3/8 10-1/8 11-1/8 10-3/8 .043 .043
Second quarter 11-3/8 9-5/8 11-1/4 9-7/8 .043 .043
First quarter 10-1/4 8-5/8 10-1/4 8-7/8 .040 .040
==============================================================================================
YEAR ENDED DECEMBER 31, 1993:
Fourth quarter $ 9-3/4 $ 7-7/8 $ 9-7/8 $ 8-1/4 $.040 $.040
Third quarter 11-3/8 9-1/8 11-1/8 9-3/8 .040 .040
Second quarter 10-1/2 8-7/8 10-1/2 8-7/8 .040 .040
First quarter 9-1/8 7-5/8 9-1/4 7-3/4 .040 .040
==============================================================================================
</TABLE>
24
Exhibit 22
REGISTRANT'S SUBSIDIARIES
The following table sets forth, at March 21, 1996, the Registrant's
significant subsidiaries and other associated companies, the jurisdiction of
incorporation of each and the percentage of voting securities of each owned by
the Registrant. There are no subsidiaries not listed in the table which would,
in the aggregate, be considered significant.
<TABLE>
<CAPTION>
State of Percentage
Active Subsidiaries: Incorporation Owned
- -------------------- ------------- -----
<S> <C> <C>
Gemaire Distributors, Inc. Florida 100%
Heating & Cooling Supply, Inc. California 100%
Comfort Supply, Inc. Delaware 100%
Central Air Conditioning Distributors, Inc. North Carolina 100%
H.B. Adams Distributors, Inc. Florida 100%
Airite, Inc. Louisiana 100%
Watsco Components, Inc. Florida 100%
Rho Sigma, Inc. Florida 100%
Cam-Stat, Inc. Florida 100%
P.E./Del Mar, Inc. Florida 100%
Dunhill Personnel System, Inc. Delaware 100%
Dunhill Temporary Systems, Inc. New York 100%
Dunhill Temporary Systems
of Indianapolis, Inc. Indiana 100%
Dunhill Personnel System
of New Jersey, Inc. New Jersey 100%
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports incorporated by reference in this Form l0-K, into
the Company's previously filed Form S-8 Registration Statement File No. 33-6229,
Form S-8 Registration Statement File No. 33-72798, Form S-3 Registration
Statement File No. 33-7758, Form S-3 Registration Statement File No. 33-37982,
Form S-3 Registration Statement File No. 333-00371 and Form S-3 Registration
Statement File No. 333-01441.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 29, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WATSCO,
INC. FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,751
<SECURITIES> 267
<RECEIVABLES> 46,665
<ALLOWANCES> 3,101
<INVENTORY> 59,724
<CURRENT-ASSETS> 112,379
<PP&E> 22,591
<DEPRECIATION> 11,305
<TOTAL-ASSETS> 144,884
<CURRENT-LIABILITIES> 71,210
<BONDS> 6,318
0
0
<COMMON> 3,141
<OTHER-SE> 50,615
<TOTAL-LIABILITY-AND-EQUITY> 144,884
<SALES> 298,939
<TOTAL-REVENUES> 331,008
<CGS> 233,089
<TOTAL-COSTS> 257,710
<OTHER-EXPENSES> 54,091
<LOSS-PROVISION> 1,197
<INTEREST-EXPENSE> 4,221
<INCOME-PRETAX> 14,070
<INCOME-TAX> 5,234
<INCOME-CONTINUING> 7,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,250
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.04
</TABLE>
