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Table of Contents
 
 
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, 2002
 
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) 714-4100
 
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: 22,233,835 shares of the Company’s Common Stock ($.50 par value), excluding treasury shares of 4,986,919 and 3,393,206 shares of the Company’s Class B Common Stock ($.50 par value), excluding treasury shares of 48,263 were outstanding as of November 1, 2002.
 
 

Table of Contents
 
WATSCO, INC.
 
 
Index to Quarterly Report
on Form 10-Q
 
         
Page
PART I—FINANCIAL INFORMATION
    
Item 1.
   
Financial Statements
     
       
3
       
4
       
5
       
6
Item 2.
      
11
Item 3.
      
16
Item 4.
      
17
PART II—OTHER INFORMATION
    
Item 1.
      
18
Item 6.
      
18
  
19
  
20

2

Table of Contents
 
PART I.     FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
WATSCO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2002 and December 31, 2001
(In thousands, except per share data)
 
    
September 30, 2002
     
December 31, 2001
  
    
(Unaudited)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
7,299
 
   
$
9,132
 
Accounts receivable, net
   
 
155,620
 
   
 
143,301
 
Inventories
   
 
189,713
 
   
 
185,943
 
Other current assets
   
 
13,711
 
   
 
18,823
 
    
  
Total current assets
   
 
366,343
 
   
 
357,199
 
Property and equipment, net
   
 
26,991
 
   
 
30,703
 
Intangible assets, net
   
 
125,531
 
   
 
124,737
 
Other assets
   
 
6,819
 
   
 
8,181
 
    
  
    
$
525,684
 
   
$
520,820
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
Current liabilities:
                  
Current portion of long-term obligations
   
$
296
 
   
$
429
 
Accounts payable
   
 
75,902
 
   
 
58,127
 
Accrued liabilities
   
 
27,064
 
   
 
28,985
 
    
  
Total current liabilities
   
 
103,262
 
   
 
87,541
 
    
  
Long-term obligations:
                  
Borrowings under revolving credit agreement
   
 
51,000
 
   
 
70,000
 
Long-term notes
   
 
30,000
 
   
 
30,000
 
Bank and other debt
   
 
1,237
 
   
 
1,900
 
    
  
Total long-term obligations
   
 
82,237
 
   
 
101,900
 
Deferred income taxes and other liabilities
   
 
10,387
 
   
 
8,959
 
    
  
Shareholders’ equity:
                  
Common Stock, $.50 par value
   
 
13,614
 
   
 
13,391
 
Class B Common Stock, $.50 par value
   
 
1,721
 
   
 
1,661
 
Paid-in capital
   
 
215,289
 
   
 
210,859
 
Unearned compensation related to outstanding restricted stock
   
 
(9,032
)
   
 
(9,772
)
Accumulated other comprehensive loss, net of tax
   
 
(3,533
)
   
 
(2,062
)
Retained earnings
   
 
169,230
 
   
 
143,487
 
Treasury stock, at cost
   
 
(57,491
)
   
 
(35,144
)
    
  
Total shareholders’ equity
   
 
329,798
 
   
 
322,420
 
    
  
    
$
525,684
 
   
$
520,820
 
    
  
 
See accompanying notes to condensed consolidated financial statements.

3

Table of Contents
 
WATSCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Quarter and Nine Months Ended September 30, 2002 and 2001
(In thousands, except per share data)
(Unaudited)
 
    
Quarter Ended
September 30,
   
Nine Months Ended September 30,
    
2002
     
2001
   
2002
     
2001
Revenue
   
$
326,286
 
   
$
336,008
   
$
914,271
 
   
$
965,270
Cost of sales
   
 
246,275
 
   
 
254,959
   
 
689,695
 
   
 
731,448
Cost of sales – restructuring
   
 
(74
)
   
 
328
   
 
246
 
   
 
328
    
  
  
  
Gross profit
   
 
80,085
 
   
 
80,721
   
 
224,330
 
   
 
233,494
Selling, general and administrative expenses
   
 
59,875
 
   
 
62,471
   
 
176,515
 
   
 
185,352
Restructuring costs
   
 
(75
)
   
 
3,017
   
 
(539
)
   
 
3,017
    
  
  
  
Operating income
   
 
20,285
 
   
 
15,233
   
 
48,354
 
   
 
45,125
Interest expense, net
   
 
1,739
 
   
 
2,408
   
 
5,520
 
   
 
7,936
    
  
  
  
Income before income taxes
   
 
18,546
 
   
 
12,825
   
 
42,834
 
   
 
37,189
Income taxes
   
 
6,704
 
   
 
4,745
   
 
15,484
 
   
 
13,759
    
  
  
  
Net income
   
$
11,842
 
   
$
8,080
   
$
27,350
 
   
$
23,430
    
  
  
  
Earnings per share:
                                
Basic
   
$
0.47
 
   
$
0.31
   
$
1.06
 
   
$
0.90
    
  
  
  
Diluted
   
$
0.45
 
   
$
0.29
   
$
1.02
 
   
$
0.86
    
  
  
  
Weighted average shares and equivalent shares used to calculate earnings per share:
                                
Basic
   
 
25,369
 
   
 
25,971
   
 
25,739
 
   
 
25,958
    
  
  
  
Diluted
   
 
26,367
 
   
 
27,424
   
 
26,912
 
   
 
27,299
    
  
  
  
 
See accompanying notes to condensed consolidated financial statements.

4

Table of Contents
 
WATSCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2002 and 2001
(In thousands)
(Unaudited)
 
    
2002
     
2001
  
Cash flows from operating activities:
                  
Net income
   
$
27,350
 
   
$
23,430
 
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Depreciation and amortization
   
 
5,957
 
   
 
9,147
 
Provision for doubtful accounts
   
 
3,787
 
   
 
3,631
 
Tax benefit from exercise of stock options
   
 
2,717
 
   
 
212
 
Other, net
   
 
(270
)
   
 
(37
)
Restructuring costs and other non-cash charges
   
 
(293
)
   
 
5,915
 
Changes in operating assets and liabilities, net of effects of acquisitions:
                  
Accounts receivable
   
 
(15,407
)
   
 
(14,407
)
Inventories
   
 
(3,095
)
   
 
(4,757
)
Accounts payable and accrued liabilities
   
 
14,377
 
   
 
3,106
 
Other, net
   
 
7,247
 
   
 
2,819
 
    
  
Net cash provided by operating activities
   
 
42,370
 
   
 
29,059
 
    
  
Cash flows from investing activities:
                  
Capital expenditures
   
 
(3,276
)
   
 
(3,990
)
Business acquisitions, net of cash acquired
   
 
(1,864
)
   
 
—  
 
Proceeds from sale of property and equipment
   
 
2,256
 
   
 
1,281
 
    
  
Net cash used in investing activities
   
 
(2,884
)
   
 
(2,709
)
    
  
Cash flows from financing activities:
                  
Purchase of treasury stock
   
 
(22,170
)
   
 
(1,715
)
Net repayments under revolving credit agreement
   
 
(19,000
)
   
 
(48,000
)
Common stock dividends
   
 
(2,250
)
   
 
(1,958
)
Net repayments of bank and other debt
   
 
(796
)
   
 
(1,696
)
Payment of debt acquisition costs
   
 
(775
)
   
 
—  
 
Net proceeds from issuances of common stock
   
 
3,672
 
   
 
637
 
Proceeds from issuance of long-term notes
   
 
—  
 
   
 
30,000
 
    
  
Net cash used in financing activities
   
 
(41,319
)
   
 
(22,732
)
    
  
Net increase (decrease) in cash and cash equivalents
   
 
(1,833
)