EXHIBIT 10.15
NEWS RELEASE WATSCO
Barry S. Logan Watsco, Inc.
Vice President, Finance 2665 S. Bayshore Drive - Suite 901
(305) 714-4102 Coconut Grove, FL 33133
e-mail: blogan@watsco.com (305) 714-4100
Fax: (305) 858-4492
www.watsco.com
For Immediate Release:
WATSCO ANNOUNCES ACTIONS TO IMPROVE
EFFICIENCY AND ENHANCE PROFITABILITY
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PROVIDES EXPECTED YEAR 2000 OPERATING AND CASH FLOW PERFORMANCE
AND YEAR 2001 OUTLOOK
MIAMI, FLORIDA, January 22, 2001 - Watsco, Inc. (NYSE : WSO) announced today
that certain business units of the Company have adopted plans to improve
operating efficiency and profitability. These actions will supplement other
profit enhancement activities undertaken throughout 2000. Once completed, these
initiatives will eliminate underperforming locations, reduce market overlap,
dispose of inventory related to discontinued product lines and eliminate
nonproductive SKUs. Watsco's operating results for 2000 will include after-tax
charges totaling approximately $5.9 million (21 cents per share) related to
these restructuring activities and will also include other non-cash charges of
$2.5 million (9 cents per share). The Company also announced that it expects
earnings per share of 98 to 99 cents for year 2000, excluding such charges.
Watsco also announced its outlook for earnings per share in 2001 of $1.15 to
$1.17.
Watsco's profitability initiatives are primarily concentrated at three of
Watsco's fourteen business units and consist of the following:
Location Closure and Integration
During the year 2000, Watsco completed the closure, consolidation and
integration of 25 locations in order to improve operating efficiency,
reduce overlap in certain markets, eliminate underperforming locations,
simplify the operating structure of selected business units, cut operating
costs and reduce inventory levels. As a further measure to improve
profitability and efficiency, Watsco has planned the additional closure
and integration of seven locations during the first half of 2001. The
Company's location closure and integration initiatives include efforts to
retain valuable customers and key employees of the affected locations.
Elimination of Unproductive Product Lines & SKUs
The Company has adopted a plan to exit a variety of product lines that
have unacceptable gross margins and sales growth rates. The exit of these
product lines and reduction of other unproductive SKUs, which are expected
to enhance long-term operating margins and increase return on capital,
will occur throughout 2001. Additional products will periodically be added
to Watsco's distribution network in order to leverage its infrastructure
and broaden product offerings. Long-term retention of new products will be
continually evaluated based on the relative strength of gross margins and
sales growth rates achieved.
Restructuring of Manufactured Housing Segment
Watsco's manufactured housing operations, representing approximately 8% of
sales, completed a substantial reduction in its workforce and incurred
other restructuring costs in response to a 23% decline in business volume
during 2000. Additional profitability initiatives are expected to be
completed during 2001. An ultimate recovery of the manufactured housing
industry, which is presently undergoing a major downturn from a diminished
availability of homeowner and dealer financing, should provide Watsco with
substantial upside earnings opportunity. Sales of
manufactured housing units have historically represented approximately 25%
of the U.S. housing market.
The Company's year 2000 financial results will include after-tax charges of
approximately $5.9 million or 21 cents per share ($4.5 million or 17 cents in
the fourth quarter) related to the restructuring initiatives outlined above. The
Company's results will also include an after-tax fourth quarter charge of
approximately $1.1 million (4 cents per share) related to increased accounts
receivable valuation reserves in the Company's manufactured housing segment and
an after-tax charge of $1.4 million (5 cents per share) to reflect the
write-down of an impaired investment in one of the Company's primary
competitors.
Albert H. Nahmad, Watsco President and Chief Executive Officer, commented on the
Company's activities: "These profit-improvement initiatives are important steps
to move our financial performance forward and also have the desired effect of
simplifying our business. We are also thinking beyond the traditional yardstick
of margins and growth rates as technology and use of the internet provide a
catalyst toward reducing inefficient bricks-and-mortar while at the same time
retaining critical employees and extending more and greater services to our
customers."
Expected Year 2000 Operating Performance
For the year ended December 31, 2000, the Company expects to report record sales
of approximately $1.3 billion, including same-store sales growth of 6% in the
Company's core HVAC business. The Company's 6% same-store sales performance
reflects gains in market share based on data published by the Air Conditioning
and Refrigeration Institute, which indicate industry growth of approximately 2%
through November 2000.
The Company expects to report operating profit, excluding the impact of the
restructuring and other charges outlined above, of approximately $56-57 million.
Earnings per share, also excluding charges, is expected to be 98-99 cents per
share. The Company is scheduled to announce its year 2000 operating results and
hold a conference call for investors and analysts on February 8, 2001.
During the year 2000, eleven of fourteen Watsco business units, representing
sales of approximately $1.1 billion or 83% of sales, achieved operating margins
of approximately 5.2%, a 40 basis-point increase compared to 1999. As discussed
above, the Company's restructuring efforts are concentrated at three
underperforming business units with annual sales approximating $220 million, or
17% of annual sales. These business units are expected to return to
profitability in 2001, after having posted significant operating losses during
2000.
For the fourth quarter of year 2000, the Company expects to report sales of
approximately $289 million, including same-store sales growth of 5% in the
Company's primary HVAC business. The Company's sales performance in the quarter
was offset in part by a 26% decline in sales to the manufactured housing
segment. Earnings per share for the fourth quarter, excluding after-tax charges
of $7.0 million (26 cents per share) as described above, is expected to be a 4-5
cent loss as the Company's operating performance was adversely impacted by the
decline in the manufactured housing segment and losses incurred by the
aforementioned underperforming business units. The fourth quarter also
represents a slower seasonal period for the Company as the sale of replacement
air conditioning and related parts is concentrated in the more temperate second
and third calendar quarters.
Year 2000 Cash Flow
Cash flow from operations will approximate $48 million, far exceeding expected
net income and reflecting the Company's on-going working capital management
efforts. This strong operating cash flow performance led to an $18 million
reduction in long-term borrowings to approximately $141 million and provided
funds for the repurchase $18 million (1.7 million shares) of the Company's
common stock during 2000. With shareholders' equity exceeding $300 million at
December 31, 2000, the Company's debt-to-total capitalization ratio is 32%. To
date, the Company's Board of Directors has authorized the repurchase of up to
4.5 million shares of common stock and, since the inception of the program in
1999, the Company has repurchased 3.1 million shares at an aggregate cost of $32
million.
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Year 2001 Outlook
The Company expects year 2001 earnings per share in the range of $1.15 to $1.17
per share with overall same-store sales growth of 4-5% based on its current
assessment of market conditions in its core residential and commercial air
conditioning and refrigeration business, including anticipated market share
gains. This growth is expected to be offset in part by a decline in business
volume in the manufactured housing segment as the dynamics caused by diminished
homeowner and dealer financing are expected to continue in 2001. The Company
expects to achieve operating margins of 4.8% to 5.0% based on on-going gross
margin enhancement activities, cost reduction and operating efficiency
initiatives and increased sales volume. Cash flow from operations in 2001 is
expected to approximate net income for the year and will be used for debt
reduction, acquisitions and share repurchases.
"The demand for our core HVAC products is driven by consumers and businesses
that need to replace air conditioning and heating equipment," commented Mr.
Nahmad. "Replacement demand is not expected to be impacted by a slowing economy
since air conditioning and heating is generally considered a necessity in the
markets served by Watsco. Our continued focus is to grow faster than the
industry and to improve our efficiency in order to ultimately move our operating
margins to 8%."
Watsco is the nation's largest distributor of air conditioning, heating and
refrigeration equipment and related products in the distribution segment of the
HVAC/R industry. The Company's strategy is to expand its distribution reach
across the United States. The Company currently operates 300 locations serving
customers in 30 states with annual revenue exceeding $1.3 billion. Additional
information about Watsco may be found on the Internet at http://www.watsco.com.
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This release contains statements which, to the extent they are not historical
fact, constitute "forward looking statements" under the securities laws,
including statements regarding acquisitions, financing agreements and industry,
demographic and other trends affecting the Company. 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.
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