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 June 30, 2001
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: 23,437,449 shares of the
Company's Common Stock ($.50 par value), excluding treasury shares of 3,152,450
and 3,236,343 shares of the Company's Class B Common Stock ($.50 par value),
excluding treasury shares of 48,263 were outstanding as of August 1, 2001.
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PART I. FINANCIAL INFORMATION
WATSCO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2001 and December 31, 2000
(In thousands, except per share data)
June 30, December 31,
2001 2000
-------- -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 5,449 $ 4,781
Accounts receivable, net 190,013 163,770
Inventories 228,447 205,805
Other current assets 13,076 18,179
-------- --------
Total current assets 436,985 392,535
Property and equipment, net 28,433 30,258
Intangible assets, net 126,886 128,656
Other assets 13,213 12,021
-------- --------
$605,517 $563,470
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 1,615 $ 1,887
Accounts payable 109,892 86,108
Accrued liabilities 22,016 26,099
-------- --------
Total current liabilities 133,523 114,094
-------- --------
Long-term obligations:
Borrowings under revolving credit agreement 117,903 138,000
Long-term notes 30,000 -
Bank and other debt 2,507 2,878
-------- --------
Total long-term obligations 150,410 140,878
-------- --------
Deferred income taxes and other liabilities 5,057 4,334
-------- --------
Shareholders' equity:
Common Stock, $.50 par value 13,285 13,217
Class B Common Stock, $.50 par value 1,643 1,579
Paid-in capital 207,767 204,871
Unearned compensation related to outstanding restricted
stock (8,419) (6,031)
Accumulated other comprehensive income (loss), net of tax (1,027) 105
Retained earnings 136,387 122,348
Treasury stock, at cost (33,109) (31,925)
-------- --------
Total shareholders' equity 316,527 304,164
-------- --------
$605,517 $563,470
======== ========
See accompanying notes to condensed consolidated financial statements.
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WATSCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Quarter and Six Months Ended June 30, 2001 and 2000
(In thousands, except per share data)
(Unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
-------- -------- -------- ---------
Revenue $351,710 $370,832 $629,262 $657,176
Cost of sales 267,138 283,052 476,489 501,929
-------- -------- -------- ---------
Gross profit 84,572 87,780 152,773 155,247
Selling, general and administrative expenses 61,339 64,467 122,881 123,896
-------- -------- -------- ---------
Operating income 23,233 23,313 29,892 31,351
Interest expense, net 2,636 3,218 5,528 6,394
-------- -------- -------- ---------
Income before income taxes 20,597 20,095 24,364 24,957
Income taxes 7,613 7,475 9,014 9,284
-------- -------- -------- ---------
Net income $ 12,984 $ 12,620 $ 15,350 $ 15,673
======== ======== ======== =========
Basic earnings per share $ 0.50 $ 0.47 $ 0.59 $ 0.57
-------- -------- -------- ---------
Diluted earnings per share $ 0.48 $ 0.45 $ 0.56 $ 0.55
-------- -------- -------- ---------
Weighted average shares and equivalent shares
used to calculate earnings per share:
Basic 25,937 26,940 25,951 27,315
======== ======== ======== =========
Diluted 27,325 28,325 27,251 28,476
======== ======== ======== =========
See accompanying notes to condensed consolidated financial statements.
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WATSCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2001 and 2000
(In thousands)
(Unaudited)
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 15,350 $ 15,673
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 6,084 6,078
Provision for doubtful accounts 2,311 2,150
Other, net (136) (60)
Changes in operating assets and liabilities:
Accounts receivable (28,554) (40,833)
Inventories (22,642) (28,226)
Accounts payable and accrued liabilities 18,981 40,124
Other, net 4,124 (1,011)
-------- --------
Net cash used in operating activities (4,482) (6,105)
-------- --------
Cash flows from investing activities:
Capital expenditures (3,115) (4,615)
Proceeds from sale of property and equipment 1,233 -
-------- --------
Net cash used in investing activities (1,882) (4,615)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreement (20,097) 28,310
Proceeds from issuance of long-term notes 30,000 -
Net repayments of bank and other debt (643) (4,339)
Net proceeds from issuances of common stock 253 564
Common stock dividends (1,297) (1,367)
Acquisition of common stock (1,184) (12,074)
-------- --------
Net cash provided by financing activities 7,032 11,094
-------- --------
Net increase in cash and cash equivalents 668 374
Cash and cash equivalents at beginning of period 4,781 7,484
-------- --------
Cash and cash equivalents at end of period $ 5,449 $ 7,858
======== ========
See accompanying notes to condensed consolidated financial statements.
4 of 14
WATSCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(In thousands, except share data)
(Unaudited)
1. The condensed consolidated balance sheet as of December 31, 2000, 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 accounting principles generally accepted
in the United States 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 six months ended June 30,
2001, are not necessarily indicative of the results for the year ending December
31, 2001. The sale of the Company's products and services is seasonal with
revenue generally increasing during the months of May through August.
3. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 by the total of
the weighted average shares outstanding. Diluted earnings per share additionally
assumes, if dilutive, any added dilution from common stock equivalents. Shares
used to calculate earnings per share are as follows:
Quarter Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Weighted average shares outstanding 25,936,682 26,940,397 25,950,860 27,315,433
Dilutive stock options and restricted shares of
common stock 1,388,655 1,384,200 1,300,410 1,160,555
---------- ---------- ---------- ----------
Shares for diluted earnings per share 27,325,337 28,324,597 27,251,270 28,475,988
========== ========== ========== ==========
Stock options and restricted shares of common
stock outstanding which are not included in
the calculation of diluted earnings per share
because their impact is antidilutive 2,938,699 2,547,378 3,022,951 2,499,628
========== ========== ========== ==========
5. The Company enters into interest rate swap agreements to reduce its exposure
to market risks from changing interest rates. Under the swap agreements, the
Company agrees to exchange, at specified intervals, the difference between fixed
and variable interest amounts calculated by reference to a notional principal
amount. Any differences paid or received on interest rate swap agreements are
recognized as adjustments to interest expense over the life of each swap,
thereby adjusting the effective interest rate on the underlying obligation. The
Company does not hold or issue such financial instruments for trading purposes.
Derivatives used for hedging purposes must be designated as, and effective as, a
hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in the fair value of the derivative contract must be highly
correlated with changes in the fair value of the underlying hedged item at
inception of the hedge and over the life of the hedge contract.
5 of 14
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, which established accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. All derivatives, whether designated
in hedging relationships or not, are required to be recorded on the balance
sheet at fair value. If the derivative is designated as a fair value hedge, the
changes in the fair value of the derivative and of the hedged item attributable
to the hedged risk are recognized in earnings. If the derivative is designated
as a cash flow hedge, the effective portions of changes in the fair value of the
derivative are recorded in other comprehensive income ("OCI") and are recognized
in the income statement when the hedged items affect earnings. Ineffective
portions of changes in the fair value of cash flow hedges are recognized in
earnings.
The adoption of SFAS No. 133 on January 1, 2001 resulted in a cumulative pre-tax
reduction to OCI of $1,001 ($629 after-tax). The Company also recorded a gain of
$396, net of income tax expense of $233, and a loss of $500, net of an income
tax benefit of $294, in OCI relating to the change in value of the cash flow
hedges for the quarter and six months ended June 30, 2001, respectively.
6. Comprehensive income consists of net income and changes in the value of
available-for-sale securities and derivative instruments and the cumulative
change in accounting principles as further discussed in Note 5 to the Condensed
Consolidated Financial Statements at June 30, 2001 and 2000. The components of
the Company's comprehensive income are as follows for the quarter and six months
ended June 30, 2001 and 2000:
Quarter Ended Six Months Ended
June 30, June 30,
----------------- -------------------
2001 2000 2001 2000
------- ------- ------- --------
Net income $12,984 $12,620 $15,350 $15,673
Unrealized holding gains (losses)
on investments arising during
the period, net of income tax
benefit (expense) of $(7),
$61, $2 and $108, respectively 12 (103) (3) (183)
Cumulative effect of accounting
change, net of income tax benefit
of $372 - - (629) -
Gain (loss) on derivative
instruments, net of income tax
benefit (expense) of $(233) and
$294, respectively 396 - (500) -
------- ------- ------- -------
Comprehensive income $13,392 $12,517 $14,218 $15,490
======= ======= ======= =======
7. During the fourth quarter of 2000, the Company's Board of Directors
approved plans adopted by certain business units of the Company to improve
operating efficiency and profitability. Those initiatives eliminate certain
underperforming locations, reduce market overlap, dispose of inventory related
to discontinued product lines and eliminate other nonproductive SKUs. In
connection with these restructuring activities, 25 locations closed during 2000
and 7 locations closed during 2001.
6 of 14
The following table summarizes the activity in restructuring liabilities or
valuation reserves during the six months ended June 30, 2001.
Restructuring Restructuring
Liability or Write-down of Liability or
Valuation Reserves at Assets to Net Cash Valuation Reserves at
December 31, 2000 Realizable Value Payments June 30, 2001
--------------------- ------------------ -------- ---------------------
Discontinued product lines $3,484 $(1,632) $ - $1,852
Noncancelable lease
obligations 1,194 - (626) 568
Other 477 (29) (293) 155
------ ------- ----- ------
Total $5,155 $(1,661) $(919) $2,575
====== ======= ===== ======
8. In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combination." SFAS No. 141 eliminates the
pooling-of-interests method of accounting for business combinations and modifies
the application of the purchase accounting method. The elimination of the
pooling-of-interest method is effective for transactions initiated after June
30, 2001. The remaining provisions of SFAS No. 141 will be effective for
transactions accounted for using the purchase method that are completed after
June 30, 2001. The Company does not believe that the adoption of SFAS No. 141
will have a significant impact on its financial statements.
In July 2001, the FASB also issued SFAS No. 142 "Goodwill and Intangible
Assets." SFAS No. 142 eliminates the current requirement to amortize goodwill
and indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life and addresses the impairment testing and recognition
for goodwill and intangible assets. SFAS No. 142 will apply to goodwill and
intangible assets arising from transactions completed before and after the
Statement's effective date. SFAS No. 142 is effective for fiscal 2002. The
Company is currently assessing the Statement and has not yet made a
determination of the impact that adoption of SFAS No. 142 will have on the
consolidated financial statements.
7 of 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The following table presents the Company's consolidated financial results for
the quarter and six months ended June 30, 2001 and 2000, expressed as a percent
of revenue:
Quarter Six Months
Ended June 30, Ended June 30,
---------------- ---------------
2001 2000 2001 2000
----- ----- ----- -----
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of sales 76.0 76.3 75.7 76.4
----- ----- ----- -----
Gross profit 24.0 23.7 24.3 23.6
Selling, general and administrative expenses 17.4 17.4 19.5 18.8
----- ----- ----- -----
Operating income 6.6 6.3 4.8 4.8
Interest expense, net (0.7) (0.9) (0.9) (1.0)
Income taxes (2.2) (2.0) (1.5) (1.4)
----- ----- ----- -----
Net income 3.7% 3.4% 2.4% 2.4%
===== ===== ===== =====
Data presented in the following narratives referring to "same-store basis"
excludes the effects of locations opened and closed during the prior twelve
months.
QUARTER ENDED JUNE 30, 2001 VS. QUARTER ENDED JUNE 30, 2000
Revenue for the three months ended June 30, 2001 decreased $19.1 million, or
5%, compared to the same period in 2000, and includes flat same-store sales in
the Company's core residential and light-commercial air conditioning, heating
and refrigeration ("HVAC") business (such business operations comprised 89% of
second quarter sales). Revenue results for the quarter were primarily impacted
by the closure of 35 locations, a 17% same-store sales decline in the
manufactured housing operations and lower sales in the personnel staffing
operations. During the quarter ended June 30, 2001, manufactured housing and
personnel staffing operations represented 7% and 4% of revenue, respectively.
Gross profit for the three months ended June 30, 2001 decreased $3.2 million,
or 4%, as compared to the same period in 2000, primarily as a result of the
aforementioned revenue decrease. Gross profit margin in the second quarter
increased to 24.0% in 2001 from 23.7% in 2000. The increase in gross profit
margin is primarily attributable to improved pricing disciplines and improved
vendor programs. On a same-store basis in the Company's core HVAC business,
gross profit margin increased to 23.5% in 2001 from 23.3% in 2000.
Selling, general and administrative expenses for the three months ended June
30, 2001 decreased $3.1 million, or 5%, as compared to the same period in 2000.
The decrease in selling, general and administrative expenses is primarily
attributable to the closure of 35 locations. Selling, general and
administrative expenses as a percent of revenue remained unchanged when compared
to the same period in 2000. On a same-store basis in the Company's core HVAC
business, selling, general and administrative expenses decreased $.7 million
and, as a percent of revenue, decreased to 16.9% in 2001 from 17.0% in 2000.
Interest expense, net for the second quarter in 2001 decreased $.6 million, or
18%, compared to the same period in 2000, primarily due to lower average
borrowings and lower interest rates during the quarter.
The effective tax rate for the second quarter declined to 37.0% from 37.2%
following the implementation of certain tax planning strategies.
8 of 14
SIX MONTHS ENDED JUNE 30, 2001 VS. SIX MONTHS ENDED JUNE 30, 2000
Revenue for the six months ended June 30, 2001 decreased $27.9 million, or 4%,
compared to the same period in 2000, and includes a 1% same-store sales increase
in the Company's core HVAC business (such business operations comprised 89% of
sales for the six months ended June 30, 2001). Revenue results for the six
months ended June 30, 2001 were primarily impacted by the closure of 35
locations, a 22% same-store sales decline in the manufactured housing operations
and lower sales in the personnel staffing operations. During the six months
ended June 30, 2001, the Company's manufactured housing and personnel staffing
operations represented 7% and 4% of revenue, respectively.
The Company believes that market share gains were achieved during the six
months ended June 30, 2001 in its core HVAC business as the Company's 1% same-
store sales growth compares favorably to a 5% decrease in industry-wide
distributor shipments during the same period, according to data published by the
Air Conditioning & Refrigeration Institute.
Gross profit for the six months ended June 30, 2001 decreased $2.5 million, or
2%, as compared to the same period in 2000, primarily as a result of the
aforementioned revenue decrease. Gross profit margin for the six months ended
June 30, 2001 increased to 24.3% in 2001 from 23.6% in 2000. The increase in
gross profit margin is primarily attributable to improved pricing disciplines
and improved vendor programs. On a same-store basis in the Company's core HVAC
business, gross profit increased $3.7 million or 3%, with gross profit margin
increasing to 23.9% in 2001 from 23.4% in 2000.
Selling, general and administrative expenses for the six months ended June 30,
2001 decreased $1.0 million, or 1%, as compared to the same period in 2000. The
decrease in selling, general and administrative expenses is primarily
attributable to the closure of 35 locations. Selling, general and
administrative expenses as a percent of revenue increased to 19.5% in 2001 from
18.8% in 2000, primarily due to operating inefficiencies resulting from lower
than expected sales volume. On a same-store basis in the Company's core HVAC
business, selling, general and administrative expenses increased $3.6 million,
and as a percent of revenue, increased to 19.0% in 2001 from 18.5% in 2000.
Interest expense, net for the six months ended June 30, 2001 decreased $0.9
million, or 14%, compared to the same period in 2000, primarily due to lower
average borrowings and lower interest rates during the period.
The effective tax rate for the six months ended June 30, 2001 declined to
37.0% from 37.2% following the implementation of certain tax planning
strategies.
Restructuring Activities
During the fourth quarter of 2000, the Company's Board of Directors approved
plans adopted by certain business units of the Company to improve operating
efficiency and profitability. Those initiatives eliminate certain
underperforming locations, reduce market overlap, dispose of inventory related
to discontinued product lines and eliminate other nonproductive SKUs. In
connection with these restructuring activities, 25 locations closed during 2000
and 7 locations closed during 2001. The Company believes that the remaining
restructuring liability and valuation reserves are adequate to complete all
other restructuring activities by December 31, 2001.
Liquidity and Capital Resources
The Company maintains a bank-syndicated revolving credit agreement that
provides for borrowings of up to $315.0 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 aggregated $117.9 million at June 30,
2001, bear interest at primarily LIBOR-based rates plus a spread that is
dependent upon the Company's financial performance (LIBOR plus .6% at June 30,
2001). The revolving credit agreement contains customary affirmative and
negative covenants including certain 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. The
Company was in compliance with all covenants at June 30, 2001.
9 of 14
On January 31, 2000, the Company entered into a $125.0 million private
placement shelf facility. The uncommitted loan facility provides the Company a
source of long-term, fixed-rate financing as a complement to the variable rate
borrowings available under its existing revolving credit facility. On February
7, 2001, the Company issued $30.0 million Senior Series A Notes ("Notes")
bearing 7.07% interest under its private placement shelf facility. The Notes
have an average life of 5 years with repayment in equal installments of $10.0
million beginning on April 9, 2005 until the final maturity on April 9, 2007.
Interest is to be paid on a quarterly basis beginning on April 9, 2001. The
Company used the net proceeds from the issuance of the Notes for the repayment
of a portion of its outstanding indebtedness under its revolving credit
facility.
The Company's Board of Directors has authorized the repurchase, at
management's discretion, of up to 4.5 million shares of the Company's stock in
the open market or via private transactions. Shares repurchased under the
program are accounted for using the cost method and result in a reduction of
shareholders' equity. During the six months ended June 30, 2001, the Company
purchased 105,200 shares at a cost of $1.2 million. Cumulative under the
program, the Company has purchased approximately 3.2 million shares at a cost of
$33.1 million.
Working capital increased to $303.5 million at June 30, 2001 from $278.4
million at December 31, 2000 primarily due to the Company's seasonal build-up of
inventory in preparation for the summer selling season. This increase was funded
primarily by borrowings as described above.
Cash and cash equivalents increased $.7 million during the six month period
ended June 30, 2001. Borrowings were the principal source of cash during the
period. The principal uses of cash were for seasonal working capital needs,
capital expenditures, common stock dividend payments and the Company's
repurchase of its Common Stock. Due to the seasonal nature of the Company's
business, outstanding borrowings typically peak during the first and second
quarters as the Company finances inventory purchases in advance of the Company's
highest sales periods, May through August.
The Company has adequate availability of capital from operations and its
borrowings 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.
Quantitative and Qualitative Disclosures about Market Risk
The Company's primary market risk exposure consists of interest rate risk. The
Company's objective in managing the exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the Company uses
interest rate swaps to manage net exposure to interest rate changes to its
borrowings. These swaps are entered into with a group of financial institutions
with investment grade credit ratings, thereby minimizing the risk of credit
loss. All items described below are non-trading.
At June 30, 2001, the Company had various interest rate swap agreements with
an aggregate notional amount of $60.0 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 with a weighted average pay rate of 6.4%.
Effective January 1, 2001 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, which established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. All
derivatives, whether designated in hedging relationships or not, are required to
be recorded on the balance sheet at fair value. If the derivative is designated
as a fair value hedge, the changes in the fair value of the derivative and of
the hedged item attributable to the hedged risk are recognized in earnings. If
the derivative is designated as a cash flow hedge, the effective portions of
changes in the fair value of the derivative are recorded in other
10 of 14
comprehensive income ("OCI") and are recognized in the income statement when the
hedged items affect earnings. Ineffective portions of changes in the fair value
of cash flow hedges are recognized in earnings.
The adoption of SFAS No. 133 on January 1, 2001 resulted in a cumulative pre-
tax reduction to OCI of $1.0 million ($.6 million after-tax). The Company also
recorded a gain of $.4 million, net of income tax expense of $.2 million, and a
loss of $.5 million, net of an income tax benefit of $.3 million, in OCI
relating to the change in value of the cash flow hedges for the quarter and six
months ended June 30, 2001, respectively.
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, 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.
The Company's shareholders should also be aware that while the Company does,
at various times, communicate with securities analysts, it is against the
Company's policies to disclose to such analysts any material non-public
information or other confidential information. Accordingly, our shareholders
should not assume that the Company agrees with all statements or reports issued
by such analysts. To the extent statements or reports issued by analysts
contain projections, forecasts or opinions by such analysts about our Company,
such reports are not the responsibility of the Company.
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 "Business Risk Factors".
11 of 14
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, 2000.
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended June 30, 2001, the Company issued 50,000 shares
of restricted Class B Common Stock to an executive officer. The Company
believes this issuance was exempt from registration pursuant to the
exemption provided by Section 4(2) of the Securities Act of 1933.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
(a) The Company's 2001 Annual Meeting of Shareholders was held on June 4,
2001.
(b) The Company's management solicited proxies pursuant to Regulation 14
under the Securities Exchange Act of 1934. There was no solicitation in
opposition to the management's nominees as listed in the proxy statement. The
following nominees were elected as indicated in the proxy statement pursuant
to the vote of the shareholders (the Common Stock director having been
elected by holders of the Company's Common Stock voting as a single class and
the Class B Common Stock directors having been elected by the Common Stock
shareholders and the Class B Common Stock shareholders voting as a single
class):
Votes For Votes Withheld
---------- --------------
Common Stock Director
---------------------
Charles Walker 15,492,099 1,624,191
Class B Common Stock Directors
------------------------------
David B. Fleeman 47,112,789 1,664,811
Bob L. Moss 47,113,239 1,664,361
Additionally, Messrs. Cesar L. Alvarez, J. Ira Harris, Paul F. Manley and
Roberto Motta will continue to serve as directors of the Company.
(c) A proposal was voted upon at the Annual Meeting of Shareholders to
ratify the action of the Board of Directors amending the Company's Amended
and Restated Articles of Incorporation to increase the number of authorized
shares of Common Stock, par value $.50 per share, of the Company to
60,000,000 and to increase the number of authorized shares of Class B Common
Stock, par value $.50 per share, of the Company to 10,000,000 shares.
The vote of the Company's Common Stock and Class B Common Stock
shareholders was as follows:
Common Stock
------------
For 11,637,741
Against 5,462,594
Withheld 15,956
Class B Common Stock
--------------------
For 31,402,340
Against 166,580
Withheld 92,390
12 of 14
(d) A proposal was voted upon to ratify the action of the Board of
Directors adopting the Company's 2001 Incentive Compensation Plan.
The combined vote of the Company's Common Stock and Class B Common
Stock shareholders was as follows:
For 35,016,083
Against 6,799,763
Withheld 94,695
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of Watsco, Inc.
(b) Reports on Form 8-K
None
13 of 14
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)
August 7, 2001
14 of 14
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of Watsco,
Inc.