Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant To Section 13 or
15(d) of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
or
[ ] Transition Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period From
___ to ___
Commission file number 1-5581
I.R.S. Employer Identification Number 59-0778222
WATSCO, INC.
(a Florida Corporation)
2665 South Bayshore Drive, Suite 901
Coconut Grove, Florida 33133
Telephone: (305) 858-0828
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO _
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: 24,731,302 shares of the
Company's Common Stock ($.50 par value) and 3,206,308 shares of the Company's
Class B Common Stock ($.50 par value) were outstanding as of November 12, 1998.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
WATSCO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997
(In thousands, except per share data)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,450 $ 7,880
Accounts receivable, net 156,706 101,727
Inventories 223,532 173,319
Other current assets 11,157 9,263
Net assets of discontinued operations 12,610 25,892
------------- ------------
Total current assets 412,455 318,081
Property, plant and equipment, net 30,875 21,870
Other assets 24,861 8,701
Intangible assets, net 104,994 77,388
------------- ------------
$573,185 $426,040
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 803 $ 958
Accounts payable 70,548 43,802
Accrued liabilities 25,128 15,562
------------- ------------
Total current liabilities 96,479 60,322
------------- ------------
Long-term obligations:
Borrowings under revolving credit agreement 200,700 134,700
Bank and other debt 4,197 2,541
------------- ------------
204,897 137,241
------------- ------------
Deferred income taxes and credits 2,880 2,879
------------- ------------
Shareholders' equity:
Common Stock, $.50 par value 12,348 7,631
Class B Common Stock, $.50 par value 1,605 1,083
Paid-in capital 187,802 163,996
Retained earnings 75,870 56,724
Unrealized loss on investments, net of tax (2,813) -
Unearned compensation related to
outstanding restricted stock (5,883) (3,836)
------------- ------------
Total shareholders' equity 268,929 225,598
------------- ------------
$573,185 $426,040
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
WATSCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
Quarter and Nine Months Ended
September 30, 1998 and 1997
(In thousands, except per share data)
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------- ---------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 317,028 $ 189,462 $ 760,597 $ 450,436
Cost of sales 245,494 147,887 588,688 350,994
--------- --------- --------- ---------
Gross profit 71,534 41,575 171,909 99,442
Selling, general and administrative expenses 51,071 29,771 130,191 73,476
--------- --------- --------- ---------
Operating income 20,463 11,804 41,718 25,966
Interest expense, net 3,249 762 7,685 1,744
--------- --------- --------- ---------
Income from continuing operations
before income taxes 17,214 11,042 34,033 24,222
Income taxes 6,369 4,194 12,592 9,326
--------- --------- --------- ---------
Income from continuing operations 10,845 6,848 21,441 14,896
Loss on sale of discontinued operation,
net of income taxes -- -- (398) --
Income (loss) from discontinued operations,
net of income taxes 271 140 (20) 737
--------- --------- --------- ---------
Net income 11,116 6,988 21,023 15,633
Retained earnings at beginning of period 65,407 48,270 56,724 40,784
Common stock dividends (653) (593) (1,877) (1,688)
Dividends on preferred stock of subsidiary -- (33) -- (97)
--------- --------- --------- ---------
Retained earnings at end of period $ 75,870 $ 54,632 $ 75,870 $ 54,632
========= ========= ========= =========
Basic earnings per share:
Income from continuing operations $ 0.39 $ 0.26 $ 0.80 $ 0.60
Loss on sale of discontinued operation -- -- (0.02) --
Income from discontinued operations 0.01 0.01 -- 0.03
--------- --------- --------- ---------
Net income $ 0.40 $ 0.27 $ 0.78 $ 0.63
========= ========= ========= =========
Diluted earnings per share:
Income from continuing operations $ 0.37 $ 0.25 $ 0.75 $ 0.56
Loss on sale of discontinued operation -- -- (0.01) --
Income from discontinued operations 0.01 0.01 -- 0.03
--------- --------- --------- ---------
Net income $ 0.38 $ 0.26 $ 0.74 $ 0.59
========= ========= ========= =========
Weighted average shares and equivalent shares
used to calculate:
Basic earnings per share 27,873 25,929 26,935 24,895
========= ========= ========= =========
Diluted earnings per share 29,493 27,634 28,568 26,599
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
WATSCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
(In thousands)
(Unaudited)
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,023 $ 15,633
Loss (income) from discontinued operations,
net of income taxes 20 (737)
Loss on sale of discontinued operation,
net of income taxes 398 --
--------- ---------
Income from continuing operations 21,441 14,896
Adjustments to reconcile income from
continuing operations to net cash used
in operating activities:
Depreciation and amortization 6,108 3,103
Provision for doubtful accounts 2,193 1,464
Deferred income tax provision (204) --
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (37,259) (27,654)
Inventories (32,226) (20,879)
Accounts payable and accrued liabilities 18,551 9,141
Other, net (2,670) (4,773)
--------- ---------
Net cash used in operating activities
of continuing operations (24,066) (24,702)
--------- ---------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (22,881) (116,785)
Capital expenditures, net (8,397) (4,662)
Purchases of marketable securities (735) (257)
--------- ---------
Net cash used in investing activities
of continuing operations (32,013) (121,704)
--------- ---------
Cash flows from financing activities:
Net borrowings under revolving credit agreement 66,000 87,900
Net repayments of bank and other debt (6,323) (12,098)
Net proceeds from issuances of common stock 2,619 86,709
Common stock dividends (1,862) (1,688)
Other -- (97)
--------- ---------
Net cash provided by financing activities
of continuing operations 60,434 160,726
--------- ---------
Net cash used in discontinued operations (3,785) (2,316)
--------- ---------
Net increase in cash and cash equivalents 570 12,004
Cash and cash equivalents at beginning of period 7,880 2,882
--------- ---------
Cash and cash equivalents at end of period $ 8,450 $ 14,886
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4 of 12
<PAGE>
WATSCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(In thousands, except share data)
(Unaudited)
1. The condensed consolidated balance sheet as of December 31, 1997, which
has been derived from the Company's audited financial statements, and the
unaudited interim condensed consolidated financial statements, have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally
included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to those rules and regulations, although the Company believes the
disclosures made are adequate to make the information presented not
misleading. In the opinion of management, all adjustments necessary for a
fair presentation have been included in the condensed consolidated
financial statements herein.
2. The results of operations for the quarter and nine month period ended
September 30, 1998 are not necessarily indicative of the results for the
year ending December 31, 1998. The sale of the Company's products is
seasonal with revenue generally increasing during the months of May
through August.
3. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
4. Basic earnings per share is computed by dividing net income, less
subsidiary preferred stock dividends, by the total of the weighted average
number of shares outstanding. Subsidiary preferred stock dividends were
$33 and $97 for the quarter and nine months ended September 30, 1997,
respectively. Diluted earnings per share additionally assumes any added
dilution from common stock equivalents.
Shares used to calculate earnings per share are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
1998 1997 1998 1997
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 27,872,756 25,929,176 26,934,811 24,894,560
Dilutive stock options 1,620,458 1,704,766 1,633,080 1,704,766
----------- ---------- ---------- ----------
Shares for diluted earnings per share 29,493,214 27,633,942 28,567,891 26,599,326
========== ========== ========== ==========
Options outstanding which are not
included in the calculation of diluted
earnings per share because their
impact is antidilutive 233,626 -- 214,126 --
========== ========== ========== ==========
</TABLE>
Weighted average common shares outstanding have been restated to include
the effect of a 3-for-2 stock split paid on August 14, 1998.
5. The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," effective January 1, 1998. SFAS
No. 130 establishes standards for reporting and display of comprehensive
income and its components in financial statements. The components of the
Company's comprehensive income are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 11,116 $ 6,988 $ 21,023 $ 15,633
Unrealized loss on investments, net of tax (3,692) -- (2,813) --
-------- -------- -------- --------
Comprehensive income $ 7,424 $ 6,988 $ 18,210 $ 15,633
======== ======== ======== ========
</TABLE>
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<PAGE>
6. Discontinued operations include a personnel staffing business, Dunhill
Staffing Systems, Inc., and, until May 1998, a manufacturing operation,
Watsco Components, Inc. ("Components"). In May 1998, the Company sold
substantially all the operating assets of Components to International
Comfort Products Corporation. Summarized results for the discontinued
operations are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1998 1997 1998 1997
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenue:
Personnel staffing $ 13,982 $ 11,535 $ 37,643 $ 32,322
Manufacturing -- 5,585 8,861 17,509
-------- -------- -------- --------
$ 13,982 $ 17,120 $ 46,504 $ 49,831
======== ======== ======== ========
Income (loss) before income taxes:
Personnel staffing $ 474 $ 472 $ 1,239 $ 1,080
Manufacturing (43) (244) (1,270) 118
-------- -------- -------- --------
431 228 (31) 1,198
Income tax expense (benefit) 160 88 (11) 461
-------- -------- -------- --------
Income (loss) from discontinued operations $ 271 $ 140 $ (20) $ 737
======== ======== ======== ========
</TABLE>
Income (loss) before income taxes includes allocated interest expense of
$128 and $96 and $376 and $263 for the quarter and nine months ended
September 30, 1998 and 1997, respectively. Interest expense was allocated
to the discontinued operations based on a ratio of net assets of the
discontinued operations to the total Company's consolidated net assets.
7. In July 1998, the Company completed the acquisition of the common stock
of Kaufman Supply, Inc. ("Kaufman"), a wholesale distributor of air
conditioning and other products to the manufactured housing industry, and
in August 1998, completed the acquisition of the common stock of SPS
Supply, Inc., a wholesale distributor of air conditioning, heating and
refrigeration products. Aggregate consideration for these acquisitions
consisted of cash payments of $16,718, debt assumption of $5,253 and the
issuance of 920,042 shares of Common Stock having a fair value of $16,520.
These transactions are subject to adjustment upon the completion of audits
of the assets purchased and the liabilities assumed.
The acquisitions have been accounted for under the purchase method of
accounting and, accordingly, their results of operations have been included
in the unaudited condensed consolidated statements of income beginning on
their respective dates of acquisition. The excess of the aggregate purchase
prices over the net assets acquired is being amortized on a straight-line
basis over 40 years.
The Company's unaudited pro forma consolidated results of operations,
assuming all significant acquisitions occurred on January 1, 1997, are as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenue $317,028 $281,295 $822,245 $734,619
Income from continuing operations $ 10,845 $ 9,528 $ 21,306 $ 18,431
Diluted earnings per share from
continuing operations $ 0.37 $ 0.33 $ 0.73 $ 0.64
</TABLE>
The unaudited pro forma consolidated results of operations is not
necessarily indicative of either the results of operations that would have
occurred had the above companies been acquired on January 1, 1997 for the
years presented or of future results of operations.
6 of 12
<PAGE>
8. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999. SFAS No. 133
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Company has not yet determined
the timing of or method of adoption of SFAS No. 133 and believes that the
adoption of this statement will not be material to the Company's
consolidated financial position or results of operations.
7 of 12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the Company's consolidated financial statements
from continuing operations for the quarter and nine months ended September 30,
1998 and 1997, expressed as a percent of revenue:
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.4 78.1 77.4 77.9
-------- ------- -------- -------
Gross profit 22.6 21.9 22.6 22.1
Selling, general and administrative expenses 16.1 15.7 17.1 16.3
-------- ------- -------- -------
Operating income 6.5 6.2 5.5 5.8
Interest expense, net 1.0 .4 1.0 .4
Income taxes 2.1 2.2 1.7 2.1
-------- ------- -------- -------
Income from continuing operations 3.4% 3.6% 2.8% 3.3%
======== ======= ======== =======
</TABLE>
The above table and following narrative includes the results of
operations of wholesale distributors of air conditioning, heating and
refrigeration equipment and related parts and supplies acquired during 1998 and
1997. These acquisitions were accounted for under the purchase method of
accounting and, accordingly, their results of operations have been included in
the consolidated results of the Company beginning on their respective dates of
acquisition.
QUARTER ENDED SEPTEMBER 30, 1998 VS. QUARTER ENDED SEPTEMBER 30, 1997
Revenue for the three months ended September 30, 1998 increased $127.6
million, or 67%, compared to the same period in 1997. Excluding the effect of
acquisitions, revenue increased $25.2 million, or 13%. Such increase was
primarily due to additional sales generated from market share gains and
increased sales generated by expanded product lines of parts and supplies.
Gross profit for the three months ended September 30, 1998 increased
$30.0 million, or 72%, as compared to the same period in 1997, primarily as a
result of the aforementioned revenue increases. Excluding the effect of
acquisitions, gross profit increased $6.3 million, or 15%. Gross profit margin
in the third quarter increased to 22.6% in 1998 from 21.9% in 1997. Excluding
the effect of acquisitions, gross profit margin increased to 22.3% in 1998 from
21.9% in 1997.
Selling, general and administrative expenses for the three months ended
September 30, 1998 increased $21.3 million, or 72%, compared to the same period
in 1997, primarily due to higher selling and delivery costs related to acquired
companies and increased sales. Excluding the effect of acquisitions, selling,
general and administrative expenses increased $3.2 million, or 11%, primarily
due to the aforementioned revenue increases. Selling, general and administrative
expenses as a percent of revenue increased to 16.1% in 1998 from 15.7% in 1997,
primarily due to the higher cost structures of acquired companies and startup
costs related to the opening of new distribution locations. Excluding the effect
of acquisitions, selling, general and administrative expenses as a percent of
revenue decreased to 15.4% in 1998 from 15.7% in 1997, primarily due to the
leveraging of expenses on increased same store sales.
8 of 12
<PAGE>
Interest expense, net for the third quarter in 1998 increased
approximately $2.5 million, compared to the same period in 1997, primarily due
to higher average borrowings used to complete business acquisitions.
The effective tax rate for the three months ended September 30, 1998
was 37.0% compared to 38.0% for the same period in 1997. This decrease was
primarily due to the implementation of certain tax planning strategies.
NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. NINE MONTHS ENDED SEPTEMBER 30, 1997
Revenue for the nine months ended September 30, 1998 increased $310.2
million, or 69%, compared to the same period in 1997. Excluding the effect of
acquisitions, revenue increased $57.8 million, or 13%. Such increase was
primarily due to additional sales generated from market share gains and
increased sales generated by expanded product lines of parts and supplies.
Gross profit for the nine months ended September 30, 1998 increased
$72.5 million, or 73%, as compared to the same period in 1997, primarily as a
result of the aforementioned revenue increases. Excluding the effect of
acquisitions, gross profit increased $13.4 million, or 14%. Gross profit margin
for the nine month period increased to 22.6% in 1998 from 22.1% in 1997.
Excluding the effect of acquisitions, gross profit margin increased to 22.2% in
1998 from 22.1% in 1997.
Selling, general and administrative expenses for the nine months ended
September 30, 1998 increased $56.7 million, or 77%, compared to the same period
in 1997, primarily due to higher selling and delivery costs related to acquired
companies and increased sales. Excluding the effect of acquisitions, selling,
general and administrative expenses increased $8.2 million, or 11%, primarily
due to the aforementioned revenue increases. Selling, general and administrative
expenses as a percent of revenue increased to 17.1% in 1998 from 16.3% in 1997,
primarily due to the higher cost structures of acquired companies and startup
costs related to the opening of new distribution locations. Excluding the effect
of acquisitions, selling, general and administrative expenses as a percent of
revenue decreased to 16.1% in 1998 from 16.3% in 1997, primarily due to the
leveraging of expenses on increased same store sales.
Interest expense, net for the nine months ended September 30, 1998
increased approximately $5.9 million, compared to the same period in 1997,
primarily due to higher average borrowings used to complete business
acquisitions.
The effective tax rate for the nine months ended September 30, 1998 was
37.0% compared to 38.5% for the same period in 1997. This decrease was primarily
due to the implementation of certain tax planning strategies.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a bank-syndicated revolving credit agreement that
provides for borrowings of up to $260 million, expiring on August 8, 2002.
Borrowings under the unsecured agreement are used to fund seasonal working
capital needs and for other general corporate purposes, including acquisitions.
Borrowings under the agreement, which totaled $200.7 million at September 30,
1998, bear interest at primarily LIBOR-based rates plus a spread that is
dependent upon the Company's financial performance (LIBOR plus .6% at September
30, 1998). The agreement contains financial covenants with respect to the
Company's consolidated net worth, interest and debt coverage ratios and limits
capital expenditures and dividends in addition to other restrictions.
9 of 12
<PAGE>
At September 30, 1998, the Company had various interest rate swap
agreements with an aggregate notional amount of $100 million to manage its net
exposure to interest rate changes related to a portion of the borrowings under
the revolving credit agreement. The interest rate swap agreements effectively
convert a portion of the Company's LIBOR-based variable rate borrowings into
fixed rate borrowings. The Company continuously monitors developments in the
capital markets and only enters into swap transactions with established
counterparties having investment-grade ratings.
Working capital increased to $316.0 million at September 30, 1998 from
$257.8 million at December 31, 1997. This increase was funded primarily by
borrowings under the Company's revolving credit agreement.
Cash and cash equivalents increased $.6 million during the nine month
period ended September 30, 1998. Principal sources of cash were borrowings under
the revolving credit agreement and profitable operations. The principal uses of
cash were to fund working capital needs, including the addition of inventory to
expand the product offerings of both existing and newly acquired locations, and
finance acquisitions and capital expenditures.
The Company has adequate availability of capital from operations and
its revolving credit agreement to fund present operations and anticipated
growth, including expansion in its current and targeted market areas. The
Company continually evaluates potential acquisitions and has held discussions
with a number of acquisition candidates; however, the Company currently has no
binding agreement with respect to any acquisition candidates. Should suitable
acquisition opportunities or working capital needs arise that would require
additional financing, the Company believes that its financial position and
earnings history provide a solid base for obtaining additional financing
resources at competitive rates and terms.
YEAR 2000 ISSUE
Many computer systems in use today may be unable to correctly process
data or may not operate at all after December 31, 1999 because those systems
recognize the year within a date only by the last two digits. Some computer
programs may interpret the year "00" as 1900, instead of as 2000, causing errors
in calculations, or the value "00" may be considered invalid by the computer
program causing the system to fail. The Year 2000 issue affects: (1) information
technology utilized by the Company, (2) other systems utilized by the Company,
such as communications, facilities management and service equipment containing
embedded computer chips and (3) systems of key customers, suppliers and other
business partners.
The Company's activities to manage the Year 2000 issue include (a)
identifying the systems that are non-compliant, (b) formulating strategies to
remedy the problems, (c) making the changes necessary through purchasing new or
modifying existing systems and (d) testing the changes. The identification and
formulation stages have been performed by the Company and each of its
subsidiaries and are nearly complete. The implementation of changes, the
validation testing of such changes and an assessment of Year 2000 exposures as
they may relate to the Company's key customers, suppliers or other business
partners are expected to be conducted over the remainder of 1998 and throughout
1999.
Based on the Company's assessment to date, management does not expect
the implementation costs related to the Year 2000 issues to have a material
adverse impact on the Company's financial position, results of operations or
cash flows; however, this estimate could change as the Company's activities to
address the Year 2000 issue progresses.
While management believes that it has undertaken reasonable steps to
address the Year 2000 issue, there can be no assurance that a failure to convert
the Company's systems or the inability of its key suppliers, customers or other
business partners to adequately address the Year 2000 issue would not have a
material adverse impact on the Company.
SAFE HARBOR STATEMENT
This quarterly report contains statements which, to the extent they are
not historical fact, constitute "forward looking statements" under the
securities laws. All forward looking statements involve risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to differ materially from those contemplated or projected,
forecasted, estimated, budgeted, expressed or implied by or in such forward
looking statements. The forward looking statements in this document are intended
to be subject to the safe harbor protection provided under the securities laws.
For additional information identifying some other important factors
which may affect the Company's operations and markets and could cause actual
results to vary materially from those anticipated in the forward looking
statements, see the Company's Securities and Exchange Commission filings,
including but not limited to, the discussion included in the Business section of
the Company's Form 10-K under the heading "Other Information".
10 of 12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no significant changes from the information reported
in the Annual Report on Form 10-K for the period ended December 31,
1997, filed on March 31, 1998.
Item 2. Changes in the Rights of the Company's Security Holders
In July and August 1998, the Company issued 920,042 shares of Common
Stock as partial consideration for acquisitions made by the Company.
See Note 7 of the Notes to Condensed Consolidated Financial Statements.
The shares were issued pursuant to an exemption set forth under Section
4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults by the Company on its Senior Securities
None
Item 4. Results of Votes of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.17 Exhibit A-1 to Employment Agreement and Incentive Plan dated
January 31, 1996 by and between Watsco, Inc. and Albert H. Nahmad
27. Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None
11 of 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WATSCO, INC.
---------------------------------
(Registrant)
By: /s/ Barry S. Logan
---------------------------------
Barry S. Logan
Vice President and Secretary
(Chief Financial Officer)
November 13, 1998
12 of 12
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------ -----------
10.17 Exhibit A-1 to Employment Agreement and Incentive Plan dated
January 31, 1996 by and between Watsco, Inc. and Albert H. Nahmad
27 Financial Data Schedule
EXHIBIT 10.17
EXHIBIT A-1
1998 Performance Goals and Performance Based Compensation
I. Formula
PERFORMANCE
BASED
A. EARNING PER SHARE COMPENSATION FORMULA
For each $.01 increase............................ $43,500
B. INCREASE IN COMMON STOCK PRICE
For each $.0625 increase in per share
price of a share of Common Stock
from $28.875 per share............................ $ 4,225
II. Method of Payment
A. CASH. The Performance Board Compensation determined for 1998 under
the formula set forth in Section I above shall be paid in cash if
and to the extent such Compensation does not exceed $1,250,000.
B. RESTRICTED STOCK. If the Performance Based Compensation determined
for 1998 under the formula set forth in Section I above exceeds
$1,250,000 (such excess amount being referred to as the "Additional
Amount"), the Executive shall be granted a number of shares of
restricted Class B Common Stock of the Company (the "Shares") equal
to the amount determined by dividing (i) two times the Additional
Amount, by (ii) closing price for the Class B Common Stock of the
Company on the American Stock Exchange as of the close of trading
on December 31, 1998. The value of any fractional shares shall be
paid in cash. The restrictions on the Shares shall lapse on the
first to occur of (i) October 15, 2014, (ii) termination of the
Executive's employment with the Company by reason of Executive's
disability or death, (iii) the Executive's termination of
employment with the Company for Good Reason; (iv) the Company's
termination of Executive's employment without Cause, or (v) the
occurrence of a Change in Control of the Company ("Good Reason",
"Cause", and "Change in Control" to be defined in a manner
consistent with the most recent grant of Restricted Stock by the
Company to the Executive).
Dated: March 23, 1998 /s/ Paul Manley
---------------------
Paul Manley, Chairman
Compensation Committee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WATSCO,
INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 8,450
<SECURITIES> 13,060
<RECEIVABLES> 163,384
<ALLOWANCES> 6,678
<INVENTORY> 223,532
<CURRENT-ASSETS> 412,455
<PP&E> 54,762
<DEPRECIATION> 23,887
<TOTAL-ASSETS> 573,185
<CURRENT-LIABILITIES> 96,479
<BONDS> 204,897
13,953
0
<COMMON> 0
<OTHER-SE> 254,976
<TOTAL-LIABILITY-AND-EQUITY> 573,185
<SALES> 760,597
<TOTAL-REVENUES> 760,597
<CGS> 588,688
<TOTAL-COSTS> 588,688
<OTHER-EXPENSES> 127,998
<LOSS-PROVISION> 2,193
<INTEREST-EXPENSE> 7,685
<INCOME-PRETAX> 34,033
<INCOME-TAX> 12,592
<INCOME-CONTINUING> 21,441
<DISCONTINUED> (418)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,023
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.74
</TABLE>
