Watsco Reports First Quarter Results

http://www.businesswire.com/news/home/20100422005297/en

Adjusted EPS 13 Cents per Share;

Sales Trends Improve, Margins Expand;

Continued Growth in Sales of High-Efficiency A/C Systems
COCONUT GROVE, Fla.--(Business Wire)--
Watsco, Inc. (NYSE:WSO) today reported its results for the first quarter ended
March 31, 2010. The results include Carrier Enterprise, a joint venture formed
on July 1, 2009 with Carrier Corporation, which added 95 locations to the Watsco
network. Watsco owns 60% of Carrier Enterprise and Carrier owns 40%.

Watsco is the largest distributor of air conditioning, heating and refrigeration
equipment and related parts and supplies in the HVAC/R industry, currently
operating 507 locations serving over 50,000 customers in 36 states, Puerto Rico,
Latin America and the Caribbean. Watsco's pro forma revenues for 2009 were
approximately $2.6 billion.

Revenues increased 75% to a record $510 million and include $226 million of
sales added by Carrier Enterprise. Same-store sales declined 3%, reflecting 5%
growth in sales of air conditioning and heating (HVAC) equipment (46% of sales),
an 11% decrease in other HVAC products (41% of sales) and a 1% decrease in the
sale of refrigeration products (13% of sales). Sales of HVAC equipment benefited
from an improved sales mix of higher-efficiency air conditioning and heating
systems, which grew 63% during the period.

Gross profit increased 65% to a record $123 million and gross profit margin was
24.1% versus 25.5% reflecting the impact of lower selling margins for Carrier
Enterprise. Same-store gross profit was $73 million, a decrease of 1%, and
same-store gross profit margin improved 50 basis-points to 26.1%. Selling,
general and administrative (SG&A) expenses increased 50% to $114 million and as
a percentage of sales were 22.3% versus 26.0% a year ago. On-going profit
enhancement initiatives reduced same-store SG&A expenses by $6 million, or 8%,
to $69 million.

Operating income was $8.9 million versus a loss of $1.6 million in 2009 with an
operating margin of 1.7%. Same-store operating income was $4.5 million with a
200 basis-point increase in operating margin to 1.6% from same period a year
ago. Diluted earnings per share were 13 cents on an adjusted basis (10 cents per
share on a GAAP basis versus a loss of 7 cents per diluted share last year) on
net income of $3.8 million versus a loss of $1.2 million in 2009.

Revenues of the new Carrier Enterprise locations during the quarter were flat on
a pro forma basis in comparison to last year (under Carrier`s ownership),
reflecting sales growth in residential equipment and non-equipment products and
a sales decline in commercial products. Operating income improved substantially
to $4.2 million in 2010 versus a pro forma loss of $4.0 million in 2009,
including improved gross margin and lower SG&A expenses. The results of Carrier
Enterprise added approximately 3 cents to diluted earnings per share during the
quarter. A summary of unaudited pro forma financial information combining
Watsco`s results of operations with the results of Carrier Enterprise as if the
joint venture had been formed on January 1, 2009 is attached.

Albert H. Nahmad, Watsco's President & Chief Executive Officer, stated: "Watsco
delivered strong earnings growth and higher margins during the first quarter in
the face of disruptive weather conditions in certain of our markets from an
improved sales trend, higher selling margins and lower operating costs. We are
encouraged by the sales growth trend in April and would expect to deliver
terrific earnings growth for the remainder of 2010, should this trend continue.
Carrier Enterprise remains focused on building revenues through market share
development and by adding new products and we are pleased with their progress
toward higher profitability and expanded margins."

Mr. Nahmad added: "Sales of higher-efficiency HVAC systems grew 63% during the
quarter, enhancing sales mix and demonstrating the relevance and attractiveness
of these products. We expect this momentum to continue as the market for
replacement air conditioning returns to historical levels and pent-up demand
begins to unwind."

It is important to note that the first quarter of each calendar year is the
seasonal low point for sales and profits due to the magnitude of the replacement
market for air conditioning, heating and refrigeration systems during the second
and third quarters of each calendar year. Accordingly, the Company's first
quarter financial results are disproportionately affected by this seasonality
and the overall general economic conditions.

Cash Flow and Dividends

During the first quarter, Watsco used $6 million of operating cash flow
primarily to fund inventory purchases for the upcoming selling season. Cash and
cash equivalents were $74 million and borrowings were $47 million at March 31,
2010 and the Company`s debt-to-total-capitalization stands at 6%. Dividends of
$15 million were paid during the quarter. In February 2010, the quarterly
dividend rate was raised 8% to 52 cents per share beginning with the April 2010
quarterly dividend payment. Watsco has paid dividends every quarter for over 30
years, and has paid increasing annual dividends since 2001.

Calculation of Earnings per Share

The Company adopted FASB Accounting Standards Codification Topic 260 (formerly
FSP EITF 03-06-1) in 2009, an accounting pronouncement that changes the
computation of earnings per share as it relates to non-vested share-based
payment awards (a 3 cent impact for the first quarter). A reconciliation of GAAP
financial results to the non-GAAP results is attached.

Conference Call

Watsco is hosting a conference call to discuss its first quarter earnings
results today at 10:00 a.m. (EDT). The conference call will be webcast by CCBN's
StreetEvents at http://www.watsco.com. A replay of the conference call will be
available on the Company's website. For those unable to connect to the webcast,
you may listen via telephone. The dial-in number is (866) 740-9405. Please call
five to ten minutes prior to the scheduled start time as the number of telephone
connections is limited.

Watsco is the largest distributor of air conditioning, heating and refrigeration
equipment and related parts and supplies in the HVAC/R industry, currently
operating 507 locations serving over 50,000 customers in 36 states, Puerto Rico,
Latin America and the Caribbean. The Company's goal is to build a network of
locations that provide the finest service and product availability for HVAC/R
contractors, assisting and supporting them as they serve the country's
homeowners and businesses. Additional information about Watsco may be found on
the Internet at http://www.watsco.com.

Use of Non-GAAP Financial Information

In this release, the Company discloses non-GAAP measures of pro forma financial
information, adjusted diluted earnings per share and same-store sales. The pro
forma financial information represents the combination of our results with the
results of Carrier Enterprise as if the joint venture had been consummated on
January 1, 2009. Information referring to "same-store basis" excludes the
effects of locations acquired, locations opened in new markets and locations
closed during the prior 12 months. The Company believes that this pro forma
financial information provides greater comparability regarding its ongoing
operating performance. These measures should not be considered an alternative to
measurements required by accounting principles generally accepted in the United
States (GAAP), such as diluted earnings per share. These pro forma measures are
unlikely to be comparable to pro forma financial information provided by other
companies.

This document includes certain "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current expectations and are subject to uncertainty and
changes in circumstances. Actual results may differ materially from these
expectations due to changes in economic, business, competitive market, new
housing starts and completions, capital spending in commercial construction,
consumer spending and debt levels, regulatory and other factors, including,
without limitation, the effects of supplier concentration, competitive
conditions within Watsco's industry, seasonal nature of sales of Watsco's
products, insurance coverage risks and final GAAP adjustments. Forward-looking
statements speak only as of the date the statement was made. Watsco assumes no
obligation to update forward-looking information to reflect actual results,
changes in assumptions or changes in other factors affecting forward-looking
information. Detailed information about these factors and additional important
factors can be found in the documents that Watsco files with the Securities and
Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K.

WATSCO, INC.

Consolidated Results of Operations

(In thousands, except per share data)

(Unaudited)

Quarter Ended March 31,
2010 2009
Revenues $509,755 $291,343
Cost of sales 387,151 217,109
Gross profit 122,604 74,234
Gross profit margin 24.1% 25.5%
SG&A expenses 113,739 75,796
Operating income (loss) 8,865 (1,562)
Operating margin 1.7% (0.5%)
Interest expense, net 897 328
Income (loss) before income taxes 7,968 (1,890)
Income tax (expense) benefit (2,493) 718
Net income (loss) 5,475 (1,172)
Less: net income attributable to the noncontrolling interest 1,642 -
Net income (loss) attributable to Watsco, Inc. $3,833 ($1,172)

Basic earnings per share:
Net income (loss) attributable to Watsco, Inc. shareholders $3,833 ($1,172)
Less: distributed and undistributed earnings allocated to non-vested (restricted) common stock 940 804
Earnings (loss) allocated to Watsco, Inc. shareholders $2,893 ($1,976)

Diluted earnings per share:
Net income (loss) attributable to Watsco, Inc. shareholders $3,833 ($1,172)
Less: distributed and undistributed earnings allocated to non-vested (restricted) common stock 940 804
Earnings (loss) allocated to Watsco, Inc. shareholders $2,893 ($1,976)

Earnings (loss) per share for Common and Class B common stock:
Basic $0.10 ($0.07)
Diluted $0.10 ($0.07)

Weighted-average Common and Class B common shares outstanding for:
Basic 30,366 26,673
Diluted 30,366 26,673

WATSCO, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

March 31, December 31,
2010 2009

Cash and cash equivalents $74,096 $58,093
Accounts receivable, net 257,523 266,284
Inventories 458,234 410,078
Other 18,989 20,843
Total current assets 808,842 755,298

Property and equipment, net 31,133 33,118
Other 370,945 372,197
Total assets $1,210,920 $1,160,613

Accounts payable and accrued expenses $247,392 $223,775
Current portion of long-term obligations 111 151
Total current liabilities 247,503 223,926

Borrowings under revolving credit agreements 47,000 12,763
Deferred income taxes and other liabilities 28,775 29,116
Total liabilities 323,278 265,805

Watsco Inc. shareholders` equity 731,019 738,026
Noncontrolling interest 156,623 156,782
Shareholders` equity 887,642 894,808
Total liabilities and shareholders` equity $1,210,920 $1,160,613

WATSCO, INC.
Supplemental Data
Pro Forma Financial Information
(Unaudited)

This unaudited pro forma financial information is presented for informational
purposes only. The unaudited pro forma financial information from the beginning
of the periods presented until the acquisition date includes adjustments to
record income taxes related to our portion of Carrier Enterprise`s income, bank
fees paid to amend our existing $300 million revolving credit agreement entered
into upon the consummation of the joint venture, bank fees paid by Carrier
Enterprise to enter into a separate secured three-year $75 million revolving
credit agreement and amortization related to identified intangible assets with
finite lives and does not include adjustments to remove certain corporate
expenses of Carrier Enterprise, which may not be incurred in future periods,
adjustments for depreciation, or synergies (primarily related to improved gross
profit and lower general and administrative expenses) that may be realized
subsequent to the acquisition date. The unaudited pro forma financial
information may not necessarily reflect our future results of operations or what
the results of operations would have been had we owned and operated Carrier
Enterprise as of the beginning of the periods presented.

Quarter Ended March 31,
2010 2009
Revenues $509,755 $516,629
Gross profit 122,604 118,089
Gross profit margin 24.1% 22.9%
Operating income (loss) 8,865 (5,575)
Operating margin 1.7% (1.1%)
Income (loss) before income taxes 7,968 (6,357)
Net income (loss) 5,475 (4,598)
Less: net (income) loss attributable to the noncontrolling interest (1,642) 1,516
Net income (loss) attributable to Watsco, Inc. $3,833 ($3,082)

Diluted earnings per share:
Net income (loss) attributable to Watsco, Inc. shareholders $3,833 ($3,082)
Less: distributed and undistributed earnings allocated to non-vested (restricted) common stock 940 809
Earnings (loss) allocated to Watsco, Inc. shareholders $2,893 ($3,891)

Diluted earnings (loss) per share for Common and Class B common stock $0.10 ($0.13)

Additional unaudited pro forma selected quarterly financial data solely for the 95 locations contributed by Carrier to the joint venture:

Quarter Ended March 31,
2010 2009
Revenues $225,819 $225,286
Operating income (loss) $4,214 ($4,013)

WATSCO, INC.

Supplemental Data

Reconciliation of GAAP Financial Results to Non-GAAP Measures

(Unaudited)

Quarter Ended
March 31,
2010 2009
Diluted earnings (loss) per common share (GAAP) $0.10 ($0.07)
Effect of FASB ASC 260 (FSP EITF 03-06-1) 0.03 0.03
Diluted earnings (loss) per common share adjusted (Non-GAAP) $0.13 ($0.04)

Watsco, Inc.
Barry S. Logan, Senior Vice President,305-714-4102
blogan@watsco.com
www.watsco.com

Copyright Business Wire 2010