Watsco Reports 2010 Results – Record Sales, Cash Flow & Market Share Gains

48% EPS Growth in 4^th Quarter Driven by 17% Revenue Increase & Margin Expansion

MIAMI--(BUSINESS WIRE)-- Watsco, Inc. (NYSE:WSO) (Paris:WSO) today reported results for the fourth quarter and for the year ended December 31, 2010.

Fourth Quarter Results

Revenues increased 17% to a record $657 million, reflecting 23% growth in air conditioning and heating (HVAC) equipment (63% of sales), 6% growth in other HVAC products (31% of sales) and 19% growth in commercial refrigeration products (6% of sales). Sales of HVAC equipment benefited from strong replacement demand, market share growth and an improved sales mix of higher-efficiency replacement HVAC systems.

Gross profit increased 15% to a record $154 million and gross profit margin was 23.4% versus 23.7% resulting from the higher sales mix of HVAC equipment. Selling, general and administrative (SG&A) expenses increased 11% to $132 million and as a percentage of sales declined 100 basis-points to 20.1%. Operating income increased 47% to $22 million and operating margin expanded 70 basis-points to 3.3%. Net income improved 48% to $10 million and earnings per share increased 48% to 31 cents per diluted share.

Albert H. Nahmad, Watsco’s President & Chief Executive Officer, stated: “Watsco delivered strong growth in sales, earnings and cash flow for the quarter, gained market share and expanded operating margins. These results are a testament to our culture, which provides local leadership the empowerment and incentives to constantly identify new opportunities to grow market share, enhance profits, provide better solutions for consumers and move ahead of the industry in terms of total performance.”

Full Year Results

Revenues increased 42% to a record $2.8 billion and improved 11% on a same-store basis. Gross profit increased 40% to a record $673 million and gross profit margin was 23.7%. On a same-store basis (including closed locations) gross profit increased 11% and gross margin improved 30 basis-points to 24.3%. SG&A expenses were $508 million and as a percentage of sales declined 210 basis-points to 17.9%. On a same-store basis, SG&A expenses increased 2%, a sharp contrast to the 11% sales increase, and declined 150 basis-points to 18.5% as a percent of revenues.

Operating income more than doubled to a record $166 million and operating margin expanded by 180 basis-points to 5.8%. On a same-store basis (including closed locations) operating profit increased 58%, with operating margins also reflecting improvement of 180 basis-points. Net income improved 86% to $81 million and earnings per share increased 78% to $2.49 per diluted share.

Mr. Nahmad added: “We remain focused on several opportunities to drive growth. First, the trend toward higher-efficiency and environmentally-sensitive HVAC products remains strong. Second, the residential installed base of HVAC systems is the oldest it has been in the history of the industry and will require replacement as older units become more expensive to repair. Third, sales of commercial products have been increasing in the last several months and are expected to recover further as capital spending continues to increase. Finally, we continue to seek opportunities to build our network through the acquisition of great businesses using our proven buy-and-build strategy.”

Cash Flow and Dividends

Operating cash flow for 2010 increased 73% to a record $153 million$5.00 per diluted share) reflecting a 10% or $47 million reduction in operating assets and liabilities. From a long-term perspective, Watsco's operating cash flow from 2000 through 2010 was approximately $850 million compared to net income of approximately $600 million, far surpassing the Company's stated goal of generating cash flow greater than net income.

At the end of 2010, cash and cash equivalents were $126 million, long-term debt was $10 million and shareholders' equity was $910 million.

Dividends to shareholders in 2010 increased 16% to $66 million, marking the ninth consecutive year of increase. In February 2011, Watsco's Board of Directors approved a 10% increase in the quarterly dividend rate to 57 cents per share, which will be reflected in the Company's next regular dividend declaration in April 2011.

Mr. Nahmad added: “Once again we produced record cash flow and met our stated goal of cash flow exceeding net income. We are pleased that our shareholders can participate directly through increased cash dividends. With the strength of our balance sheet and overall financial position, we are well-positioned to take advantage of almost any-sized investment opportunity to grow our business.”

Conference Call

Watsco is hosting a conference call at 10:00 a.m. (ET) on February 15, 2011 to discuss its fourth quarter earnings results. The conference call will be web-cast 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 web-cast, you may listen via telephone. The dial-in number for callers in the United States is (866) 740-9405; the dial-in number for callers outside of the United States is (702) 696-4900.

About Watsco, Inc.

Watsco improves indoor living and working environments with air conditioning and heating solutions that provide comfort regardless of the outdoor climate. Our solutions also promote healthier indoor spaces by removing pollutants from the indoor air that can lead to asthma, allergies and reductions in productivity. Furthermore, since heating and cooling accounts for approximately 56% of the energy consumed in a typical United States home, we offer consumers the greatest opportunity to save money on energy by replacing existing air conditioning and heating systems with more energy efficient and environmentally friendly solutions.

There are approximately 74 million central air conditioning and heating systems installed in the United States that have been in service for more than 10 years. Older systems often operate below government mandated energy efficiency and environmental standards. Watsco has an opportunity to accelerate the replacement of these systems at a scale greater than our competitors as the movement toward reducing energy consumption and its environmental impact continues. As the industry leader with over 500 locations in the United States and Puerto Rico, with additional market coverage on an export basis to parts of Latin America and the Caribbean, significant growth potential remains given that our current revenue run-rate is less than 10% of the estimated $30 billionUnited States market for HVAC/R products. Additional information about Watsco may be found at http://www.watsco.com.

Use of Non-GAAP Financial Information

In this release, the Company discloses non-GAAP measures of same-store sales. 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 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).

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, seasonality, 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 share and per share data)
(Unaudited)

	Quarter Ended December 31,						Year Ended December 31,
		2010			2009			2010			2009
Revenues	$	657,248		$	563,606		$	2,844,595		$	2,001,815
Cost of sales		503,221			430,002			2,171,354			1,520,983
Gross profit		154,027			133,604			673,241			480,832
Gross profit margin		23.4	%		23.7	%		23.7	%		24.0	%
SG&A expenses		132,232			118,728			507,669			399,772
Operating income		21,795			14,876			165,572			81,060
Operating margin		3.3	%		2.6	%		5.8	%		4.0	%
Interest expense, net		830			1,028			3,490			2,731
Income before income taxes		20,965			13,848			162,082			78,329
Income taxes		6,443			4,526			50,360			26,756
Net income		14,522			9,322			111,722			51,573
Less: net income attributable to noncontrolling interest		4,077			2,249			30,962			8,259
Net income attributable to Watsco, Inc.	$	10,445		$	7,073		$	80,760		$	43,314

Computation of diluted earnings per share:
Net income attributable to Watsco, Inc. shareholders	$	10,445		$	7,073		$	80,760		$	43,314
Less: distributed and undistributed earnings allocated to non-vested (restricted) common stock		974			840 </td>			4,772			3,320
Earnings allocated to Watsco, Inc. shareholders	$	9,471		$	6,233		$	75,988		$	39,994

Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share		30,637,584			30,299,067			30,578,608			28,521,437
Diluted earnings per share	$	0.31		$	0.21		$	2.49		$	1.40

WATSCO, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

	December 31,		December 31,
	2010		2009


Cash and cash equivalents	$	126,498	$	58,093
Accounts receivable, net		305,088		266,284
Inventories		391,925		410,078
Other		14,493		20,843
Total current assets		838,004		755,298

Property and equipment, net		31,221		33,118
Goodwill, intangibles, net and other		368,002		372,197
Total assets	$	1,237,227	$	1,160,613

Accounts payable and accrued expenses	$	285,234	$	223,775
Current portion of long-term obligations		72		151
Total current liabilities		285,306		223,926

Borrowings under revolving credit agreements		10,000		12,763
Deferred income taxes and other liabilities		32,326		29,116
Total liabilities		327,632		265,805

Watsco Inc. shareholders’ equity		745,160		738,026
Noncontrolling interest		164,435		156,782
Total shareholders’ equity		909,595		894,808
Total liabilities and shareholders’ equity	$	1,237,227	$	1,160,613