SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 30, 1997
Commission File Number 1-5581
WATSCO, INC.
(Exact name of registrant as specified in charter)
FLORIDA 59-0778222
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
2665 South Bayshore Drive, Suite 901
Coconut Grove, Florida 33133
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (305) 858-0828
Not applicable
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 30, 1997 ("closing date"), Watsco, Inc. ("Watsco") and Trek
Corporation ("Trek") completed a transaction pursuant to a Stock Purchase
Agreement (the "Agreement") whereby Watsco purchased all of the issued and
outstanding capital stock of Baker Distributing Company ("Baker"), a
wholly-owned subsidiary of Trek. Baker is a wholesale distributor of air
conditioning, refrigeration and heating equipment and related parts and supplies
operating in the states of Alabama, Florida, Georgia, Louisiana, North Carolina,
South Carolina and Virginia.
The purchase price was approximately $65 million and is subject to
adjustment following an audit of Baker's financial statements as of the closing
date. Payment of the purchase price was funded from borrowings under Watsco's
syndicated revolving credit agreement led by NationsBank.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS PAGE NO.
- ------------------------------------------ --------
(a) Consolidated financial statements of Baker Distributing Company and
subsidiary:
Independent Auditors' Report 5
Consolidated Balance Sheets as of June 30, 1997 (unaudited) and September
30, 1996 6-7
Consolidated Statements of Income and Retained Earnings for the nine months
ended June 30, 1997 and 1996 (unaudited) and the year ended September 30,
1996 8
Consolidated Statements of Cash Flows for the nine months ended June 30,
1997 and 1996 (unaudited) and the year ended September 30, 1996 9
Notes to Consolidated Financial Statements 10-14
(b) Unaudited pro forma condensed consolidated financial statements:
(i) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1997 giving effect to the acquisition of Baker as if it 15
had been consummated on June 30, 1997
(ii) Unaudited Pro Forma Condensed Consolidated Statements of Income
for the six months ended June 30, 1997 and the year ended December
31, 1996 giving effect to the acquisition of Baker as if it had
been consummated on January 1, 1997 and January 1, 1996, 16-17
respectively
(iii) Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements 18
(c) Exhibits:
10.19. Stock Purchase Agreement dated as of September 10, 1997 by and 19-83
between Watsco, Inc. and Trek Corporation
2
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WATSCO, INC.
By: /S/ BARRY S. LOGAN
-------------------------------
Barry S. Logan
Vice President and Secretary
(Chief Financial Officer)
Date: October 14, 1997
3
ITEM 7(a)
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF TREK CORPORATION)
CONSOLIDATED FINANCIAL STATEMENTS
4
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Baker Distributing Company
We have audited the accompanying consolidated balance sheet of Baker
Distributing Company (formerly known as Baker Bros., Inc.) and subsidiary (the
"Company"), a wholly-owned subsidiary of Trek Corporation, as of September 30,
1996, and the related consolidated statements of income and retained earnings
and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Baker Distributing Company and subsidiary as
of September 30, 1996 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 22, 1996
(September 30, 1997 as to Note 10)
5
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND SEPTEMBER 30, 1996
(In thousands)
JUNE 30, SEPTEMBER 30,
1997 1996
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 3,020 $ 2,213
Accounts receivable, less allowance for 15,132 17,884
doubtful accounts of $582 and $374,
respectively
Employee receivables 584 845
Inventories 23,056 23,619
Prepaid expenses 268 178
--------- ---------
Total current assets 42,060 44,739
--------- ---------
Property, plant and equipment, at cost:
Land 12 15
Buildings and improvements 290 507
Vehicles and warehouse equipment 1,789 1,872
Furniture and fixtures 1,885 2,053
Leasehold improvements 1,216 1,329
--------- ---------
5,192 5,776
Less accumulated depreciation and amortization 3,239 3,273
--------- ---------
1,953 2,503
--------- ---------
Other assets 808 952
Deferred income taxes 1,223 1,223
Due from parent, net 3,545 --
--------- ---------
Total assets $ 49,589 $ 49,417
========= =========
(continued)
6
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND SEPTEMBER 30, 1996
(In thousands)
June 30, September 30,
1997 1996
--------- ---------
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 11,100 $ 12,047
Accrued liabilities:
Salaries and bonuses 896 1,371
Profit-sharing plan 350 910
Other 1,624 1,380
Income taxes payable 673 194
Current portion of long-term debt 75 69
Deferred income taxes 939 939
--------- ---------
Total current liabilities 15,657 16,910
--------- ---------
Due to parent, net -- 145
Deferred compensation under stock
appreciation rights plan 2,078 2,557
Long-term debt, net of current portion 112 160
Commitments and contingencies (Notes 5 and 8)
Stockholder's equity:
Common stock - no par value; authorized, issued
and outstanding 60 shares 4,157 4,157
Retained earnings 27,585 25,488
--------- ---------
Total stockholder's equity 31,742 29,645
--------- ---------
Total liabilities and stockholder's equity $ 49,589 $ 49,417
========= =========
See notes to consolidated financial statements.
7
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 AND YEAR ENDED SEPTEMBER 30, 1996
(In thousands)
NINE MONTHS ENDED
JUNE 30, YEAR ENDED
----------------------- SEPTEMBER 30,
1997 1996 1996
---------- ---------- ----------
(Unaudited)
Revenues:
Net sales $ 102,536 $ 113,507 $ 163,600
Other income 440 376 560
---------- ---------- ----------
Total revenues 102,976 113,883 164,160
---------- ---------- ----------
Cost and expenses:
Cost of sales 78,475 87,132 124,961
Selling, general and administrative expenses 20,986 22,427 32,119
---------- ---------- ----------
Total costs and expenses 99,461 109,559 157,080
---------- ---------- ----------
Operating income 3,515 4,324 7,080
Interest expense 21 208 239
---------- ---------- ----------
Income before income taxes 3,494 4,116 6,841
Provision for income taxes:
Federal 1,223 1,406 2,268
State 174 240 389
---------- ---------- ----------
Total provision for income taxes 1,397 1,646 2,657
---------- ---------- ----------
Net income 2,097 2,470 4,184
Retained earnings, beginning of period 25,488 21,304 21,304
---------- ---------- ----------
Retained earnings, end of period $ 27,585 $ 23,774 $ 25,488
========== ========== ==========
See notes to consolidated financial statements.
8
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 AND YEAR ENDED SEPTEMBER 30, 1996
(In thousands)
NINE MONTHS ENDED
JUNE 30, YEAR ENDED
-------------------------- SEPTEMBER 30,
1997 1996 1996
----------- ----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 2,097 $ 2,470 $ 4,184
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 617 707 812
Loss (gain) on sale of property, plant and equipment (144) 33 56
Deferred income taxes -- (68) (83)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 2,752 (2,253) (1,317)
Employee receivables 261 (5) (68)
Inventories 563 (4,219) (2,560)
Prepaid expenses and other assets (95) (38) 165
Increase (decrease) in:
Accounts payable (947) 3,383 2,702
Accrued liabilities (791) (131) 416
Taxes payable 479 1,438 82
Deferred compensation under stock appreciation (479) -- 342
rights plan
----------- ----------- -----------
Net cash provided by operating activities 4,313 1,317 4,731
----------- ----------- -----------
Cash flows from investing activities:
Advances to parent (3,690) (2,808) (3,891)
Purchases of property, plant and equipment (278) (422) (497)
Proceeds from sales of property, plant and equipment 504 8 26
----------- ----------- -----------
Net cash used in investing activities (3,464) (3,222) (4,362)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt (42) (4) (65)
----------- ----------- -----------
Net increase (decrease) in cash 807 (1,909) 304
Cash at beginning of year 2,213 1,909 1,909
----------- ----------- -----------
Cash at end of year $ 3,020 $ -- $ 2,213
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 21 $ 17 $ 239
=========== =========== ===========
Income taxes $ 437 $ 217 $ 270
=========== =========== ===========
Federal income taxes payable of $481, $0 and $2,281 for the nine months ended
June 30, 1997 and 1996 and the year ended September 30, 1996, respectively, were
offset against the due from (to) parent as the Company's parent made federal tax
payments on its behalf.
See notes to consolidated financial statements.
9
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission and include the accounts of Baker Distributing Company (the
"Company") and its wholly-owned subsidiary, Booth Refrigeration Supply Co., Inc.
("Booth"). All material intercompany profits, transactions and balances have
been eliminated. The Company is a wholly-owned subsidiary of Trek Corporation
(the "Parent").
Interim Financial Information - The unaudited consolidated balance sheet as
of June 30, 1997 and the unaudited consolidated statements of income and
retained earnings and cash flows for the nine months ended June 30, 1997 and
1996 include, in the opinion of management, all adjustments necessary to present
fairly the Company's consolidated financial position, results of operations and
cash flows. The results for the nine months ended June 30, 1997 are not
necessarily indicative of the results for the year ending September 30, 1997.
The sale of the Company's products is seasonal with revenues generally
increasing during the months of May through August.
Cash - Cash includes cash on hand and on deposit at various financial
institutions.
Depreciation and Amortization - Property, plant and equipment are stated at
cost. Depreciation and amortization are computed by the straight-line method
over the estimated useful lives of the assets. When items of property are
retired or otherwise disposed of, the cost of the assets and the accumulated
depreciation are removed from the accounts. Any resulting gains or losses are
taken into income.
Discount amortization - Discounts on long term debt are being amortized on
a straight-line basis over the life of the related debt.
Income Taxes - Deferred income taxes are calculated in accordance with the
method described by the Financial Accounting Standards Board under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Accordingly, deferred income taxes are recognized for items of income and loss
recognized in different periods for financial and income tax reporting purposes
and on differences between book and tax bases of net assets acquired in purchase
transactions using presently enacted rates.
Use of Estimates - The preparation of consolidated 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.
Fair Value of Financial Instruments - The Company believes the carrying
amount of its financial instruments (cash, accounts receivable, employee
receivables, accounts payable, deferred compensation under stock appreciation
rights plan and long-term debt) is a reasonable estimate of the fair value of
these instruments.
Future Accounting Pronouncements - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS 121"). SFAS 121, which is effective for years beginning
after December 15, 1995, establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used for long-lived assets and certain identifiable
intangibles to be disposed of. Impairment is assessed by comparing the book
value of such assets to the estimated undiscounted future operating cash flows
expected to result from the use of the asset and its final disposition. If the
sum of the expected future cash flow is less than the carrying amount of the
asset, an impairment loss is recognized based on the fair value of the asset.
Effective October 1, 1996, the Company
10
adopted SFAS 121. The adoption of SFAS 121 did not have a material effect on the
Company's consolidated financial position or results of operations.
2. BUSINESS
Substantially all of the Company's revenue is derived from the wholesale
distribution of air conditioning, refrigeration and heating equipment,
appliances, parts and supplies. The Company's operations encompass the states of
Alabama, Florida, Georgia, Louisiana, North Carolina, South Carolina and
Virginia.
3. INVENTORIES
All inventories are valued at the lower of cost determined by the last-in,
first-out (LIFO) method or market. The LIFO method results in a more appropriate
matching of current costs with current revenues. Under the LIFO method of
inventory valuation, inventories were reduced by approximately $4,018 at
September 30, 1996.
If the first-in, first-out (FIFO) method of inventory valuation had been
used, income before income taxes would have been increased by approximately $892
for the year ended September 30, 1996.
4. LONG-TERM DEBT
Long-term debt at September 30, 1996 consists of:
Mortgage note (7-1/4% at September 30, 1996) due in
monthly installments of $6 including interest through
June, 1998 (interest rate renegotiable, not to exceed
9-1/2%) $102
5% Small Business Administration Loans - due through
2009 in monthly installments of $2 including interest,
net of unamortized discount of $88 based on imputed
interest rate of 18% of $2 including interest 127
------
229
Less current portion (69)
------
$160
======
The mortgage note is collateralized by land and a building with an
immaterial book value. The Small Business Administration loan is collateralized
by inventories and accounts receivable.
Maturities of long-term debt after September 30, 1996 are as follows:
1997 $ 69
1998 51
1999 7
2000 8
2001 8
Thereafter 86
------
$229
======
11
5. OPERATING LEASES
The Company leases certain facilities and equipment under noncancellable
long-term operating leases which expire at various dates through 2014. Future
minimum lease commitments as of September 30, 1996 were as follows:
REAL ESTATE EQUIPMENT TOTAL
----------- --------- ---------
1997 $ 3,169 $ 496 $ 3,665
1998 2,902 298 3,200
1999 2,103 103 2,206
2000 1,397 12 1,409
2001 1,149 5 1,154
Thereafter 5,481 - 5,481
--------- --------- ---------
$ 16,201 $ 914 $ 17,115
========= ========= =========
Some leases require the Company to pay property taxes, insurance and normal
maintenance and repairs and have renewal options. Total rental expense was
approximately $4,313 for the year ended September 30, 1996.
6. INCOME TAXES
The provision for income taxes has been computed as if the Company filed
tax returns separate from the Parent. The difference between the total taxes
reported for the Company and all other subsidiaries of the Parent and the
consolidated expense is reported as part of the Parent's tax expense or credit.
The Parent therefore receives the benefit of or charge for any difference
between the consolidated tax provision and separate return provisions. The
provision for income taxes for the year ended September 30, 1996 includes the
following:
Current payable $ 2,620
Deferred 37
--------
Provision for income tax $ 2,657
========
Reconciliation from the statutory U.S. Federal income tax rate to the
Company's effective rate is as follows:
Statutory tax rate 35.0%
Effect of graduated rates (1.0)
State income taxes, net of Federal
income tax benefit 3.9
Other, net .9
-----
Effective tax rate 38.8%
======
The Company's temporary differences are principally related to
depreciation, timing of deductibility of other accruals and recognition of other
gains and their related tax effects. Deferred tax assets and liabilities at
September 30, 1996 are summarized below:
Deferred tax assets $ 1,223
Deferred tax liabilities (939)
-------
Net deferred tax asset $ 284
=======
12
The Company, through its acquisition of Booth, can utilize certain tax
attributes such as a net operating loss carryforward ("NOL") for both regular
and alternative minimum tax purposes. The amount of the NOL for regular tax
purposes is $949. The utilization of such losses is limited on an annual basis
subject to certain limitations in the Internal Revenue Code and will expire in
varying amounts ending in the year 2010.
7. PROFIT-SHARING AND RETIREMENT PLANS
The Company has a trusteed, non-contributory profit sharing and retirement
plan covering substantially all employees of the Company. During the fiscal year
ended September 30, 1996, Booth's plan was merged into the Company's plan. The
annual contribution to the plan is determined at the discretion of the Board of
Directors and amounted to $910 for the year ended September 30, 1996.
8. RELATED PARTY TRANSACTIONS
The Parent provided the Company short-term advances with interest at the
prime rate during the year ended September 30, 1996. There were no outstanding
borrowings at September 30, 1996. Interest incurred on these short-term
borrowings was $218 in 1996.
The Company provides long-term and short-term advances to the Parent. The
long-term advances are non-interest bearing and totaled $2,185 at September 30,
1996.
The Company guarantees two notes aggregating $53,000 for the Parent.
Outstanding borrowings under the notes were $37,700 at September 30, 1996.
The Company incurred costs for the year ended September 30, 1996 of $1,300
for management services provided by the Parent and costs of $40 as a usage
charge for the Company's computer system, which was provided by the Parent.
The Company also guarantees a credit agreement for the Parent. Amounts
available under the agreement are adjusted periodically according to seasonal
requirements and range from $57,000 to $84,000 for operating capital, letters of
credit and bankers acceptance financing. Additionally, $165,000 may be used to
enter into foreign exchange contracts. Outstanding borrowings were $28,800 at
September 30, 1996. In addition, there were $10,790 of letters of credit and
non-discounted bankers acceptances outstanding at September 30, 1996 and the
Parent had contracts to sell foreign currencies for U.S. dollars at fixed
forward rates of $33,953 and contracts to purchase 1,150,603 Japanese yen
($10,511) at fixed forward rates.
The Company was allocated costs of $416 for the year ended September 30,
1996 for general business insurance and workmen's compensation insurance that
was obtained by the Parent for the benefit of the Company.
The Company leases one store from the profit sharing and retirement plan as
of September 30, 1996. Rental expense to the plan was approximately $29 for the
year ended September 30, 1996.
9. DEFERRED COMPENSATION UNDER APPRECIATION RIGHTS PLAN
The Parent has a deferred compensation plan under which common stock
appreciation rights may be granted. Holders of the stock appreciation rights are
entitled to receive cash in an amount equal to the increase in book value per
share over the initial value. The charge to operations under the stock
appreciation rights plan was approximately $430 for the year ended September 30,
1996.
13
10. SUBSEQUENT EVENTS
Effective June 30, 1997, Booth, the Company's wholly-owned subsidiary, was
merged with and into the Company.
On September 30, 1997, the Parent completed a transaction pursuant to a
Stock Purchase Agreement (the "Agreement") with Watsco, Inc. ("Watsco") whereby
the Parent sold all of the outstanding capital stock of the Company to Watsco.
The accompanying financial statements do not include the effects, if any, on the
carrying amount of assets and liabilities relative to the transaction
contemplated in the Agreement.
14
ITEM 7(b)(i)
WATSCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
PRO FORMA PRO FORMA
WATSCO BAKER ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- -----------
Dr. (Cr.)
ASSETS
Current assets:
Cash and cash equivalents $ 6,123 $ 3,020 $ $ 9,143
Accounts receivable, net 110,119 15,132 125,251
Inventories 150,115 23,056 4,393 177,564
Prepaid expenses and other current assets 9,282 852 (584)(2) 9,550
----------- ----------- ----------- -----------
Total current assets 275,639 42,060 3,809 321,508
----------- ----------- ----------- -----------
Property, plant and equipment, net 25,245 1,953 27,198
Intangible assets, net 39,279 529 31,333 71,141
Other assets 9,050 1,502 (790)(2) 9,762
Due from parent -- 3,545 (3,545)(2) --
----------- ----------- ----------- -----------
$ 349,213 $ 49,589 $ 30,807 $ 429,609
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
obligations $ 994 $ 75 $ $ 1,069
Accounts payable 44,186 11,100 55,286
Accrued liabilities 16,129 3,543 (673)(2) 19,299
300 (2)
----------- ----------- ----------- -----------
Total current liabilities 61,309 14,718 (373) 75,654
----------- ----------- ----------- -----------
Long-term obligations:
Borrowings under revolving credit
agreement 57,900 -- 65,000 122,900
Bank and other debt 10,438 112 10,550
----------- ----------- ----------- -----------
68,338 112 65,000 133,450
----------- ----------- ----------- -----------
Deferred income taxes and credits 1,671 939 2,610
Preferred stock of subsidiaries 4,413 -- 4,413
Deferred compensation under stock
appreciation rights plan -- 2,078 (2,078)(2) --
Shareholders' equity:
Common Stock 7,548 4,157 (4,157)(2) 7,548
Class B Common Stock 1,086 -- 1,086
Paid-in capital 156,578 -- 156,578
Retained earnings 48,270 27,585 (27,585)(2) 48,270
----------- ----------- ----------- -----------
Total shareholders' equity 213,482 31,742 (31,742) 213,482
----------- ----------- ----------- -----------
$ 349,213 $ 49,589 $ 30,807 $ 429,609
=========== =========== =========== ===========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of this statement.
15
ITEM 7 (b)(ii)
WATSCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (IN
THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
WATSCO BAKER ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
Dr. (Cr.)
Revenues $ 293,685 $ 71,183 $ $ 364,868
Cost of sales 227,344 54,249 (250)(3) 281,343
----------- ----------- --------- ---------
Gross profit 66,341 16,934 250 83,525
Selling, general and
administrative expenses 51,088 13,277 392 64,757
----------- ----------- --------- ---------
Operating income 15,253 3,657 (142) 18,768
----------- ----------- --------- ---------
Other income (expense):
Investment income, net 464 -- 464
Interest expense (1,567) -- (2,031)(4) (3,598)
----------- ----------- --------- ---------
(1,103) -- (2,031) (3,134)
----------- ----------- --------- ---------
Income before income taxes 14,150 3,657 (2,173) 15,634
Income taxes (5,505) (1,463) 837 (6,131)
----------- ----------- --------- ---------
Net income $ 8,645 $ 2,194 $ (1,336) $ 9,503
=========== =========== ========= ==========
Earnings per share:
Primary $ .50 $ .55
=========== ==========
Fully diluted $ .50 $ .55
=========== ==========
Weighted average shares and equivalent
shares used to calculate:
Primary 17,322 17,322
=========== ==========
Fully diluted 17,322 17,322
=========== ==========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of this statement.
16
ITEM 7 (b)(ii)
WATSCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
WATSCO BAKER (A) ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
Dr. (Cr.)
Revenues $ 425,389 $ 164,160 $ $ 589,549
Cost of sales 329,790 124,961 (892)(3) 453,859
----------- ----------- ----------- -----------
Gross profit 95,599 39,199 892 135,690
Selling, general and
administrative expenses 71,353 32,119 (430)(2) 103,825
783 (2)
----------- ----------- ----------- -----------
Operating income 24,246 7,080 539 31,865
----------- ----------- ----------- -----------
Other income (expense):
Investment income, net 628 -- 628
Interest expense (3,656) (239) (4,063)(4) (7,958)
----------- ----------- ----------- -----------
(3,028) (239) (4,063) (7,330)
----------- ----------- ----------- -----------
Income before income taxes
and minority interests 21,218 6,841 (3,524) 24,535
Income taxes (8,110) (2,657) 1,357 (9,410)
Minority interests (116) -- (116)
----------- ----------- ----------- -----------
Net income $ 12,992 $ 4,184 $ (2,167) $ 15,009
=========== =========== =========== ===========
Earnings per share:
Primary $ .93 $ 1.09
=========== ===========
Fully diluted $ .91 $ 1.06
=========== ===========
Weighted average shares outstanding:
Primary 13,760 13,760
=========== ===========
Fully diluted 14,192 14,192
=========== ===========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of this statement.
17
ITEM 7(b)(iii)
WATSCO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) The Unaudited Pro Forma Condensed Consolidated Financial Statements give
effect to the purchase by Watsco, Inc. ("Watsco") of all the issued and
outstanding capital stock of Baker Distributing Company ("Baker"). The pro
forma information is based on the historical financial statements of Watsco
and Baker. The acquisition will be accounted for under the purchase method
of accounting.
The Unaudited Pro Forma Condensed Consolidated Financial Statements may not
necessarily be indicative of the results that would actually have been
obtained had the acquisition of Baker occurred on the dates indicated or
which may be obtained in the future. In the opinion of Watsco's management,
all adjustments necessary to present fairly such Unaudited Pro Forma
Condensed Consolidated Financial Statements have been included. The pro
forma condensed consolidated financial statements should be read in
conjunction with the historical financial statements and related notes of
Watsco and Baker.
(2) The estimated purchase price for Baker is $65.3 million, including estimated
acquisition expenses. Goodwill, representing the excess cost over the net
assets acquired, will be amortized over a 40 year period. A reconciliation
of the net assets of Baker to be acquired to the total estimated purchase
price is as follows:
Fair value of net assets $31,742
Adjustment of inventory to FIFO cost basis 4,393
Assets not purchased -
Due from parent (3,545)
Employee receivables (584)
Liabilities not assumed -
Federal and state income tax liability 673
Deferred compensation under stock
appreciation rights plan, net of
related tax benefit 1,288
Excess of purchase price over net assets acquired 31,333
----------
Total $65,300
==========
(3) The inventories included in the historical financial statements of Baker are
stated under the last-in, first-out method. Subsequent to the acquisition of
Baker, such inventory amounts will be stated by Watsco based on the
first-in, first-out (FIFO) method. These amounts represent adjustments to
reflect inventories and cost of sales using the FIFO method as if Baker
valued inventories under the FIFO method as of the beginning of each year
presented in the accompanying pro forma condensed consolidated financial
statements.
(4) Watsco intends to use borrowings under its current revolving credit
agreement to fund the acquisition of Baker's capital stock.
(5) Represents pro forma income taxes at a blended statutory rate of 38.5%.
18