Watsco
WSO
#1728
Rank
โ‚น1.181 T
Marketcap
โ‚น28,646
Share price
-1.22%
Change (1 day)
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Change (1 year)
Watsco, Inc. is an American distributor of air conditioning, heating and refrigeration equipment and related parts and supplies.
Text size:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission File Number 1-5581

WATSCO, INC.
(Exact name of registrant as specified in its charter)

FLORIDA 59-0778222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2665 South Bayshore Drive, Suite 901,
Coconut Grove, FL 33133
(Address of principal executive offices)

Registrant's telephone number, including area code: (305) 858-0828

Securities Registered Pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $.50 par value New York Stock Exchange
Class B Common Stock, $.50 par value American Stock Exchange
10% Convertible Subordinated American Stock Exchange
Debentures Due 1996

Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of class)

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 and 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form l0-K or any amendment to this
Form l0-K. X

The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 21, 1996 was $183,491,004.

The number of shares of Common Stock outstanding as of March 21, 1996 was
7,544,771 shares of Common Stock and 1,442,378 shares of Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Parts I and II is incorporated by reference
from the Annual Report to Stockholders for the year ended December 31, 1995,
attached hereto as Exhibit 13. The information required by Part III (Items 10,
11, 12 and 13) will be incorporated by reference from the Registrant's
definitive proxy statement (to be filed pursuant to Regulation 14A).
PART I

ITEM 1. BUSINESS

GENERAL

Watsco, Inc. (the "Registrant" or the "Company") is the largest distributor
of residential central air conditioners and supplies in the United States, with
leading positions in Florida, Texas and California, the three largest air
conditioning markets in the country, as well as significant positions in
Alabama, Arkansas, Arizona, Louisiana, Nevada, North Carolina, Latin America and
South America. In 1989, the Company embarked on a strategy of establishing a
network of distribution facilities across the sunbelt where U.S. population
growth is greatest, weather patterns are predictably hot and air conditioning is
seen as a necessity. Since initiating this strategy, the Company's revenues have
increased from $25 million in 1988 to $331 million in 1995.

The Company estimates that the market for residential central air
conditioners and related supplies in the sunbelt was over $7 billion in 1994 and
has grown at an annual rate of 5.6% since 1990. The replacement market has
increased substantially in size over the past ten years, surpassing the
homebuilding market in significance as a result of the aging of the installed
base of residential central air conditioners, the introduction of new energy
efficient models and the upgrading of existing homes to central air
conditioning. According to the Air Conditioning and Refrigeration Institute
(ARI), over 61 million central air conditioner units have been installed in the
United States since 1975. Many of the units installed from the mid-1970s to the
mid-1980s are reaching the end of their useful lives, thus providing a growing
replacement market.

The Company focuses on satisfying the needs of the higher margin
replacement market, where customers demand immediate, convenient and reliable
service. The Company believes that its size and financial resources allow it to
provide superior customer service by offering a complete product line of
equipment, parts and supplies, multiple warehouse locations and well-stocked
inventories. The Company conducts its distribution business through its
subsidiaries: Gemaire Distributors, Inc. ("Gemaire"); Heating & Cooling Supply,
Inc. ("Heating & Cooling"); Comfort Supply, Inc. ("Comfort Supply"); and Central
Air Conditioning Distributors, Inc. ("Central Air Conditioning") (collectively,
the "Distribution Operations"). The primary supplier to the Distribution
Operations is Rheem Manufacturing Company ("Rheem"), one of the largest
manufacturers of residential central air conditioners in the United States,
based on the number of units sold.

The Company also sells to the homebuilding market. The Company believes
that its reputation for reliable, high quality service and its relationships
with contractors, who generally serve both the replacement and new construction
markets, allow it to compete effectively in this segment of the market.
Homebuilding remains below the levels of the mid-1970s to mid-1980s in many of
the markets the Company serves.

The Company has acquired eight air conditioning distributors since 1989
when the Company began its acquisition strategy to establish a network of
distribution branches across the sunbelt. The following is a description of the
Company's acquisitions completed in 1995:

Airite, Inc. - In February 1995, the Company acquired Airite, Inc., a
wholesale distributor of residential central air conditioners with branches in
Shreveport and Monroe, Louisiana and Texarkana, Texas. Airite sells to nearly
400 licensed air conditioning and heating contractors and the Company believes
that Airite had 1995 revenues of approximately $4 million.


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H.B. Adams, Inc. - In March 1995, the Company acquired certain assets of
H.B. Adams, Inc. (now operating as H.B. Adams Distributors, Inc.). H.B. Adams is
a wholesale distributor of air conditioning, heating and refrigeration products
and operates seven branches in the Tampa, Florida market area, the second
largest market for air conditioning equipment in Florida. H.B. Adams had 1995
revenues of approximately $20 million.

Environmental Equipment & Supplies, Inc. - In May 1995, the Company
acquired certain assets of Environmental Equipment & Supplies, Inc., a wholesale
distributor of air conditioning and heating equipment which sells to nearly 300
licensed air conditioning and heating contractors. Environmental Equipment
operates from branches in Fort Smith and Jonesboro, Arkansas and had 1995
revenues of approximately $6 million.

Central Air Conditioning Distributors, Inc. - In October 1995, the Company
acquired certain assets of Central Air Conditioning Distributors, Inc., a
wholesale distributor of residential central air conditioners and related
products. Central Air Conditioning sells to approximately 1,200 licensed air
conditioning and heating contractors from five branches in North Carolina and
had 1995 revenues of approximately $21 million.

In addition to distributing air conditioning and heating equipment, the
Company also produces over 4,000 electronic and mechanical components for air
conditioning, heating and refrigeration equipment through its manufacturing
subsidiaries: Watsco Components, Inc., Rho Sigma, Inc. and Cam-Stat, Inc. (the
"Manufacturing Operations"). These components are sold to over 5,000 wholesale
distributors and original equipment manufacturers ("OEMs").

The Company also owns Dunhill Personnel System, Inc. ("Dunhill"), a
national provider of permanent and temporary personnel services to business,
professional and service organizations, government agencies, health care
providers and other employers.

The Company's principal executive offices are located at 2665 South
Bayshore Drive, Suite 901, Coconut Grove, Florida 33133, and its telephone is
(305) 858-0828.

RECENT DEVELOPMENTS

On March 6, 1996, the Company completed a public offering in which it sold
1,570,000 shares of Common Stock resulting in net proceeds of approximately
$32.6 million. The Company intends to use approximately $14 million of the
proceeds to fund the pending acquisition of Three States Supply Company, Inc.
discussed below.

Effective March 19, 1996, the Company and Rheem completed a transaction
pursuant to a Stock Exchange Agreement and Plan of Reorganization (the "Exchange
Agreement") whereby the Company acquired Rheem's minority interests in three of
the Company's distribution subsidiaries. See "Relationship with Rheem
Manufacturing Company" for further discussion.

The Company has signed a letter of intent for the purchase of the net
assets and business of Three States Supply Company, Inc., a Memphis,
Tennessee-based distributor of building materials used primarily in the heating
and air conditioning industry. The completion of the transaction is subject to
certain conditions and is expected to occur during April 1996. The purchase
price, estimated at $14 million, is subject to adjustment upon the completion of
an audit of the net assets and will be funded from a portion of the proceeds
from the sale of Watsco's Common Stock completed on March 6, 1996.


3
Also see "Liquidity and Capital Resources" in Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report to Shareholders for the year ended December 31, 1995
(the "1995 Annual Report").

INDUSTRY SEGMENT INFORMATION

The Climate Control segment consists of the Distribution Operations and the
Manufacturing Operations. The Distribution Operations distribute residential
central air conditioners and related parts and supplies in Florida, California,
Texas, Alabama, Arkansas, Arizona, Louisiana, Nevada, North Carolina and Latin
America and South America. The Manufacturing Operations make components and
equipment which are sold and distributed to the air conditioning, refrigeration
and heating industry (see "Climate Control Segment").

In the Personnel Services segment, Dunhill and its subsidiaries provide
temporary help and permanent placement services (see "Personnel Services
Segment"). The Company also has certain employees and resources which provide
services to each of these segments. Note 12 of Notes to Consolidated Financial
Statements, included in the Company's 1995 Annual Report, incorporated herein by
reference under Item 8, contains a table setting forth the revenues and
operating income of the Company's two industry segments during the three years
ended December 31, 1995, 1994 and 1993.


DESCRIPTION OF BUSINESS

DISTRIBUTION OPERATIONS

PRODUCTS The Company markets a complete line of residential central air
conditioners (primarily under the Rheem brand name) and related parts and
supplies and maintains sufficient inventory to meet customers' immediate needs.
The Company's strategy is to provide every product a contractor generally would
require in order to install or repair a residential or light commercial central
air conditioner. Such products include residential central air conditioners
ranging from 1-1/2 to 5 tons*, light commercial air conditioners ranging up to
20 tons, insulation, grills, sheet metal and other ductwork, copper tubing,
concrete pads and tape. In addition, the Company also sells products such as
electric and gas heating units, air-to-air heat pumps and rooftop equipment.
Sales of air conditioning and heating equipment accounted for approximately 63%
of the distribution operations' revenues for 1995. Sales of parts and supplies
(currently numbering approximately 28,000 different inventory items) comprised
the remaining portions of revenues. In 1995, purchases of Rheem products
represented approximately 58% of the aggregate purchases of the distribution
operations. Any significant interruption in the delivery of Rheem's products
would inhibit the Company's ability to continue to maintain its current
inventory levels and could adversely affect the Company's business. The
Company's future results of operations are also materially dependent upon the
continued market acceptance of Rheem's products and the ability of Rheem to
continue to manufacture products that comply with laws relating to environmental
and efficiency standards.

* The cooling capacity of air conditioning units is measured in tons. One ton
of cooling capacity is equivalent to 12,000 BTUs and is generally adequate
to air condition approximately 500 square feet of residential space.

DISTRIBUTION AND SALES The Company operates from 70 branch warehouses
located in regions of the sunbelt which the Company believes have favorable
demographic trends. The Company maintains well-stocked inventories at each
warehouse location to meet the immediate need of its customers. This is
accomplished by transporting inventory between warehouses daily and either
directly delivering products to customers with the Company's fleet of 137 trucks
or making the products available for pick-up at the branch nearest to the
customer. The company has 111 commissioned salespeople who average 16 years of
experience in the residential central air conditioning distribution industry.


4
MARKETS The Company has been granted exclusive rights under distribution
agreements for Rheem brand-name products in each of the most significant market
areas and many of the major metropolitan areas in the United States sunbelt
including: Florida; the eastern half of Texas (including the Dallas, Houston,
San Antonio and Austin metropolitan areas), southern and central California;
Arizona; Nevada; western North Carolina (including the Charlotte metropolitan
area) and additional territories in Louisiana; Alabama and Arkansas. The Company
also has distribution rights for the Rheem brand name or Weatherking brand name
(manufactured by Rheem) in substantially all of Central America, South America
and the Caribbean.

CUSTOMERS AND CUSTOMER SERVICE The Company sells to contractors and dealers
who service the new construction and replacement markets for residential and
light commercial central air conditioners. In 1995, the Company served over
13,600 customers, with no single customer accounting for more than 2% of
consolidated revenues. The Company focuses on providing products where and when
the customer needs them, technical support by phone or on site as required, and
quick and efficient service at the distribution branches. Management believes
that the Company successfully competes with other distributors in the
residential and light commercial central air conditioning market primarily on
the basis of its experienced sales organization, strong service support, high
quality reputation and broad product lines.

RELATIONSHIP WITH RHEEM MANUFACTURING COMPANY The Company is Rheem's
largest distributor and believes that it maintains a unique and mutually
beneficial relationship with Rheem, one of the largest manufacturers of
residential central air conditioning equipment in the United States. Rheem has a
well-established reputation of producing high-quality, competitively priced
products. The Company believes that Rheem's current product offerings, quality,
serviceability and brand-name recognition allow the Company to operate favorably
against its competitors. To maintain brand-name recognition, Rheem provides
national advertising and participates with the Company in cooperative
advertising programs and promotional incentives that are targeted to both
contractors and homeowners. The Company estimates the replacement market
currently accounts for approximately 65% of industry sales in the United States
and expects this percentage to increase as units installed in the 1970s and
1980s wear out and get replaced or updated to more energy-efficient models. The
Company believes Rheem's products have wide acceptance in the replacement market
based on their high efficiency and low noise level -- two key homeowner
considerations. Additionally, Rheem has demonstrated the flexibility to
manufacture products to international specifications to meet export demands.

Rheem acquired minority ownership interests in Gemaire (20%), Comfort
Supply (20%) and Heating & Cooling (50%) as a joint venture partner with the
Company in the acquisition of each of these subsidiaries. In March 1996, the
Company and Rheem restructured their relationship upon completing a transaction
pursuant to a Stock Exchange Agreement and Plan of Reorganization (the "Exchange
Agreement") whereby the Company acquired Rheem's minority ownership interests of
these three subsidiaries in exchange for 964,361 shares of the Company's
unregistered Common Stock. Following completion of this transaction, Gemaire,
Comfort Supply and Heating & Cooling became wholly owned subsidiaries of the
Company. Also, Rheem's Chief Executive Officer will become a member of the
Company's Board of Directors.

The Exchange Agreement modified certain other agreements with respect to
each of the distribution subsidiaries on terms that are favorable to the
Company. Previous agreements between the Company and Rheem provided Rheem with
the right to "call" from the Company and the Company with the right to "put" to
Rheem the Company's ownership interests in Gemaire, Comfort Supply and Heating &
Cooling during specified periods according to prescribed valuation formulas.
Under the terms of the Exchange Agreement, the put/call provisions are
effectively eliminated because the rights to "put" or "call" become exercisable
primarily upon the occurrence of certain insolvency events.


5
The Company also has distribution agreements with Rheem. The distribution
agreements of Gemaire, Comfort Supply and Heating & Cooling extend through 2006
with annual renewals thereafter. These distribution agreements contain
provisions limiting the sale of products that are directly competitive with
Rheem products. Based on the acceptance of other complimentary, non-competitive
equipment products and the Company's additional focus on the sale of parts and
supplies, the Company does not believe that such limitations have a material
effect on its operations. Except for the limitations set forth in the
distribution agreements of Gemaire, Comfort Supply and Heating & Cooling, the
Company may distribute other manufacturers' lines of air conditioning equipment.

MANUFACTURING OPERATIONS

The Company's manufacturing operations are highly self-sufficient and
include facilities for die-casting, stamping, screw machining, secondary metal
working operations and a fully equipped tool room. The Company has not
encountered significant problems in obtaining manufacturing materials,
consisting primarily of metals and other raw materials, which are readily
available from many suppliers.

PRODUCTS The Company produces over 4,000 electronic and mechanical
components for air conditioning, heating and refrigeration equipment. Products
include: components, such as line tap and specialty valves, motor compressor
protectors, liquid sight glasses and warm air controls; and equipment, such as
vacuum pumps and refrigerant recovery systems. Many of the Company's products
are patented and compete in the market place based on uniqueness as well as
quality and price.

CUSTOMERS The Company's OEM customers include most of the major residential
air conditioning manufacturers such as Rheem, Carrier Air Conditioning, Inc.,
Inter-City Products Corporation and York International (through its Evcon
subsidiary). Another significant OEM customer, RV Products, Inc., is the
nation's largest manufacturer of air conditioning for recreational vehicles. The
Company also sells to wholesale distributors who distribute the Company's
products to the aftermarket. In 1995, the Company served over 5,000 domestic and
international customers, with no single customer accounting for more than 1% of
consolidated revenues.

RESEARCH AND DEVELOPMENT The Company conducts research and development to
improve the quality and performance of its manufactured products and to develop
new products and product line improvements. The Company performs research and
development both in-house and by extensive field testing of products. The
Company's engineering staff, consisting of 11 employees, develops new customized
products to end-user specification and continuously improves, supplements and
enhances product lines with newly developed products.

PERSONNEL SERVICES SEGMENT

Dunhill, founded in 1952, is one of the nation's best known personnel
service networks. Through franchised, licensed, and company-owned offices in 38
states, Puerto Rico and Canada, Dunhill provides permanent placement and
temporary help services to businesses, professional and service organizations,
government agencies, health care providers, and other employers. Dunhill's
operations consist of 114 franchised permanent placement offices and 19
franchised, 5 licensed and 14 company-owned temporary personnel service offices.
Dunhill's franchisees operate their businesses autonomously within the framework
of the Company's policies and standards, and recruit, employ, and pay their own
employees, including temporary employees. Dunhill's permanent placement division
recruits primarily middle-management, sales, technical, administrative and
support personnel for permanent employment in a wide variety of industries and
positions. The fees paid by employers to Dunhill for its permanent placement
services are typically contingent upon the successful placement of an employee
and are generally a percentage of the annual compensation to be paid to the new
employee.


6
Dunhill receives an initial fee from all licensees and franchisees, and
on-going revenues in the form of royalty fees and commissions from temporary
help licensees and franchisees and permanent placement operations. Licenses and
franchises are generally granted for 5 and 10 year terms, respectively, and are
typically renewable at the option of the licensee or franchisee for additional
terms of 5 and 10 years, respectively.


OTHER INFORMATION

COMPETITION

All of the Company's businesses operate in highly competitive environments.
The Company's distribution business competes with a number of distributors and
also with air conditioner manufacturers who distribute a significant portion of
their products through factory-owned distribution organizations. Many of the
manufacturers which have distribution organizations are larger than the Company
and have substantial financial resources. Competition within any given
geographic market is based upon product availability, customer service, price
and quality. The Company's manufacturing business has several major competitors,
a few of which are larger and have substantial financial resources. Dunhill
competes with numerous other large and small national, regional, and local
personnel service providers. Competitive pressures or other factors could cause
the Company's products or services to lose market acceptance or result in
significant price erosion, all of which would have a material adverse effect on
the Company's profitability.


EMPLOYEES

The Climate Control segment employed 929 persons and the Personnel Services
segment employed 91 persons as of March 21, 1996. The Company believes that its
relations with these employees are good.


SEASONALITY

Sales of residential central air conditioners, heating equipment and parts
and supplies manufactured and distributed by the Company have historically been
seasonal. Demand related to the residential replacement market generally peaks
in the third quarter for air conditioners (the Company's principal distribution
product) and in the fourth quarter for heating equipment. Demand related to the
new construction market varies according to the season, with increased demand
generally from March through October.


OTHER

Order backlog is not a material aspect of the Company's business and no
material portion of the Company's business is subject to government contracts.


7
ITEM 2.    PROPERTIES

The Company's significant facilities are currently in the following
locations:

<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION USE FOOTAGE LEASED
-------- --- ------- ------
<S> <C> <C> <C>
Watsco:
Coconut Grove, FL Headquarters 3,137 Leased
Manufacturing Operations:
Hialeah, FL Manufacturing 90,000 Owned
Hialeah, FL Manufacturing 36,000 Owned
Hialeah, FL Manufacturing 12,000 Owned
Gemaire:
Deerfield Beach, FL Headquarters 10,768 Leased
Tampa, FL Warehouse 50,000 Leased
Deerfield Beach, FL Warehouse 48,500 Leased
Orlando, FL Warehouse 30,000 Leased
Miami, FL Warehouse 28,306 Leased
Clearwater, FL Warehouse 22,000 Leased
Lakeland, FL Warehouse 15,000 Leased
Mobile, AL Warehouse 15,000 Leased
Perrine, FL Warehouse 13,234 Leased
Riviera Beach, FL Warehouse 12,800 Leased
Lakeland, FL Warehouse 12,000 Leased
Pensacola, FL Warehouse 12,000 Leased
Hollywood, FL Warehouse 11,400 Leased
Tampa, FL Warehouse 11,000 Leased
Daytona Beach, FL Warehouse 10,000 Leased
Ft. Myers, FL Warehouse 10,000 Leased
Melbourne, FL Warehouse 10,000 Leased
New Port Richey, FL Warehouse 10,000 Leased
Ocala, FL Warehouse 10,000 Leased
St. Petersburg, FL Warehouse 10,000 Leased
Vero Beach, FL Warehouse 10,000 Leased
Jacksonville, FL Warehouse 9,790 Leased
Sarasota, FL Warehouse 8,578 Leased
Ft. Walton Beach, FL Warehouse 8,000 Leased
Tallahassee, FL Warehouse 8,000 Leased
Panama City, FL Warehouse 7,500 Leased
Lakeland, FL Warehouse 7,200 Leased
Sebring, FL Warehouse 7,000 Leased
Winter Haven, FL Warehouse 7,000 Leased
Murdock, FL Warehouse 6,300 Leased
St. Petersburg, FL Warehouse 5,000 Leased
Heating & Cooling:
San Diego, CA Headquarters 7,200 Leased
Modesto, CA Warehouse 60,000 Leased
Phoenix, AZ Warehouse 30,000 Leased
Fresno, CA Warehouse 25,079 Leased
Orange, CA Warehouse 25,050 Leased
San Diego, CA Warehouse 25,000 Leased


8
SQUARE                OWNED/
LOCATION USE FOOTAGE LEASED
-------- --- ------- ------

Heating & Cooling (cont.):
Riverside, CA Warehouse 24,940 Leased
Sacramento, CA Warehouse 24,000 Leased
Van Nuys, CA Warehouse 22,100 Leased
Santa Clara, CA Warehouse 20,000 Leased
Las Vegas, NV Warehouse 19,600 Leased
Escondido, CA Warehouse 15,000 Leased
Long Beach, CA Warehouse 15,000 Leased
Tucson, AZ Warehouse 14,500 Leased
Oxnard, CA Warehouse 14,344 Leased
El Monte, CA Warehouse 11,200 Leased
Yuma, AZ Warehouse 3,800 Leased
Comfort Supply:
Houston, TX Headquarters/Warehouse 38,780 Leased
Carrollton, TX Warehouse 35,000 Leased
North Little Rock, AR Warehouse 25,000 Leased
Bryan, TX Warehouse 21,750 Leased
Harlingen, TX Warehouse 17,000 Leased
Killeen, TX Warehouse 17,000 Leased
Shreveport, LA Warehouse 16,000 Leased
Austin, TX Warehouse 15,700 Leased
Haltom City, TX Warehouse 15,000 Leased
Houston, TX Warehouse 15,000 Leased
Longview, TX Warehouse 15,000 Owned
Houston, TX Warehouse 14,800 Leased
San Antonio, TX Warehouse 14,000 Leased
Houston, TX Warehouse 12,000 Leased
Dallas, TX Warehouse 11,250 Leased
Stafford, TX Warehouse 5,500 Leased
Jonesboro, AR Warehouse 5,000 Leased
Texarkana, TX Warehouse 3,800 Leased
Monroe, LA Warehouse 3,500 Leased
Central Air Conditioning:
Winston-Salem, NC Headquarters/Warehouse 12,500 Leased
Hickory, NC Warehouse 22,806 Leased
Greensboro, NC Warehouse 20,000 Leased
Charlotte, NC Warehouse 19,000 Leased
Winston-Salem, NC Warehouse 14,500 Leased
Asheville, NC Warehouse 10,000 Leased
Dunhill:
Woodbury, NY Headquarters 8,500 Leased


</TABLE>

The Company believes that its facilities are well maintained and adequate to
meet its needs.


9
ITEM 3.    LEGAL PROCEEDINGS

The Company is from time to time involved in routine litigation. Based on the
advice of legal counsel, the Company believes that such actions presently
pending will not have a material adverse impact on the Company's consolidated
financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the year ended December 31, 1995.


10
PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

Page 28 of the 1995 Annual Report contains "Information on Common Stock",
which identifies the market on which the Registrant's Common Stocks are being
traded and contains the high and low sales prices and dividend information for
the years ended December 31, 1995, 1994 and 1993 and is incorporated herein by
reference.


ITEM 6. SELECTED FINANCIAL DATA

Page 8 of the Company's 1995 Annual Report contains "Selected Consolidated
Financial Data" and is incorporated herein by reference.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Pages 9 through 11 of the Company's 1995 Annual Report contain
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and is incorporated herein by reference.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Pages 12 through 25 of the Company's 1995 Annual Report contain the
Consolidated Financial Statements of the Company at December 31, 1995 and 1994
and for the years ended December 31, 1995, 1994 and 1993 and is incorporated
herein by reference. The Company's unaudited quarterly financial data for the
years ended December 31, 1995, 1994 and 1993 is included in the 1995 Annual
Report on page 27. The Report of Independent Certified Public Accountants for
the years ended December 31, 1995, 1994 and 1993 is included in the Company's
1995 Annual Report on page 26.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.


11
PART III

This part of Form 10-K, which includes Items 10 through 13, is omitted
because the Registrant will file definitive proxy material pursuant to
Regulation 14A not more than 120 days after the close of the Registrant's year
end, which proxy material will include the information required by Items 10
through 13 and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K

Financial Statements

(a) (i) Data incorporated by reference from the attached
1995 Annual Report of Watsco, Inc.:

Report of Independent Certified Public Accountants

Consolidated Statements of Income for the years
ended December 31, 1995, 1994 and 1993

Consolidated Balance Sheets as of December 31, 1995 and 1994

Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1995, 1994 and 1993

Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993

Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

PAGE NO.
<S> <C>
Financial Statement Schedules

(a) (ii) Data included herein:

Report of Independent Certified Public
Accountants on Schedules 16

Consolidated financial statement schedules for
the years ended December 31, 1995, 1994 and 1993

I. Condensed financial information of Registrant 17-19

II. Valuation and qualifying accounts 20

All other schedules have been omitted since the required information
is not present, or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the Consolidated Financial Statements or notes thereto.

</TABLE>


12
(a) (iii)    Exhibits:

3.1 Company's Amended and Restated Articles of Incorporation (filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q dated
June 30, 1995 and incorporated herein by reference).

3.2 Company's Amended Bylaws (filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1985 and incorporated herein by reference).

4.1 Indenture dated as of September 12, 1986 between the Company and
Southeast Bank, N.A. (filed as Exhibit 4 to the Company's
Registration Statement on Form S-3 (No. 33-7758) and incorporated
herein by reference).

4.2 Specimen form of Class B Common Stock Certificate (filed as Exhibit
4.6 to the Company's Registration Statement on Form S-1 (No.
33-56646) and incorporated herein by reference).

4.3 Specimen form of Common Stock Certificate (filed as Exhibit 4.4 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).

10.1 Rheem Manufacturing Company Distributor Agreement by and between
Rheem Manufacturing Company and Gemaire Distributors, Inc., dated
December 30, 1988 (filed as Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference).

10.2 Amendment dated January 4, 1991 to Distribution Agreement dated
December 30, 1990 between Rheem Manufacturing Company and Gemaire
Distributors, Inc. (filed as Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (No. 33-56646) and incorporated
herein by reference).

10.3 Distributor Agreement between Heating & Cooling Supply, Inc. and
Rheem Manufacturing, Inc. dated October 15, 1990 (filed as Exhibit
10.17 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 and incorporated herein by reference).

10.4 Rheem Manufacturing Company Distributor Agreement by and between
Rheem Manufacturing Company and Comfort Supply, Inc. (filed as
Exhibit 10.20 to the Company's Form 8-K dated May 26, 1993 and
incorporated herein by reference).

10.5 Preferred Stock Purchase Agreement between Heating & Cooling
Supply, Inc. and Rheem Manufacturing Company dated June 10, 1993
(filed as Exhibit 10.27 to the Company's Quarterly Report on Form
10-Q dated September 30, 1993 and incorporated herein by
reference).

10.6 Line of Credit Agreement by and between Comfort Supply, Inc. and
NationsBank of Florida, N.A. dated September 23, 1993 (filed as
Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q dated
September 30, 1993 and incorporated herein by reference).

10.7 Amended and Restated Revolving Credit and Term Loan Agreement by
and between NationsBank of Florida, N.A. and Gemaire Distributors,
Inc. dated March 10, 1995 (filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).


13
10.8    Line of Credit Agreement between Heating & Cooling Supply, Inc. and
Bank of America National Trust and Savings Association dated
September 28, 1995 (filed as Exhibit 10.26 to the Company's
Quarterly Report on Form 10-Q dated September 30, 1995 and
incorporated herein by reference).

10.9 Revolving Credit Agreement dated October 26, 1995 by and between
CAC Acquisition, Inc. and NationsBank of Florida, N.A. (filed as
Exhibit 10.27 to the Company's Registration Statement on Form S-3
(No. 333-00371) and incorporated herein by reference).

10.10 Stock Exchange Agreement and Plan of Reorganization dated February
6, 1996 by and between Watsco, Inc. and Rheem Manufacturing Company
(filed as Exhibit 10.29 to the Company's Registration Statement on
Form S-3 (No. 333-00371) and incorporated herein by reference).

<TABLE>
<CAPTION>
PAGE NO.

<S> <C> <C>
10.11 Amendment dated February 6, 1996 to Distributor Agreement 22-24
dated December 30, 1998 between Rheem Manufacturing Company
and Gemaire Distributors, Inc.

10.12 Amendment dated February 6, 1996 to Distributor Agreement 25-27
dated May 25, 1993 (and as amended by Supplemental Agreement
dated as of June 1, 1995) between Rheem Manufacturing Company
and Comfort Supply, Inc.

10.13 Amendment dated February 6, 1996 to Distributor Agreement 28-30
dated October 15, 1990 between Rheem Manufacturing Company
and Heating & Cooling Supply, Inc.

11. Computation of Earnings Per Share for the years ended 31
December 31, 1995, 1994 and 1993

13. 1995 Annual Report to Shareholders. With the exception 32-55
of the information incorporated by reference into Items 1, 5, 6, 7
and 8 of this Form 10-K, the 1995 Annual Report to Shareholders
is not deemed filed as part of this Form 10-K.

22. Subsidiaries of the Registrant 56

23. Consent of Independent Certified Public Accountants 57
Management Contracts and Compensatory Plans or Arrangements:

27. Financial Data Schedule (for SEC use only) 58

10.14 1983 Executive Stock Option Plan of Watsco, Inc. (filed as Exhibit
10.3 to the Company's Registration Statement on Form S-8
(Registration No. 33-6229) and incorporated herein by reference).

10.15 Key Executive Deferred Compensation Agreement dated January 31,
1983, between Watsco, Inc. and Albert H. Nahmad (filed as Exhibit
10.8 to the Company's Registration Statement on Form S-1
(No. 33-56646) and incorporated herein by reference).
</TABLE>


14
10.16   Watsco, Inc. Amended and Restated 1991 Stock Option Plan (filed as
Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q dated
June 30, 1993 and incorporated herein by reference).

10.17 Watsco, Inc. Amended and Restated Profit Sharing Retirement Plan
and Trust Agreement dated October 21, 1994 (filed as Exhibit 10.25
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).

(b) Reports on Form 8-K

None.


15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES



To the Board of Directors and
Shareholders of Watsco, Inc.:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Watsco, Inc.'s annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated March 29, 1996. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The accompanying
Schedules I and II are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.





ARTHUR ANDERSEN LLP


Miami, Florida,
March 29, 1996.



16
WATSCO, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(In thousands of dollars)



<TABLE>
<CAPTION>
(a) Balance Sheets December 31,
- ------------------
1995 1994
-------- ------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 811 $ 259
Marketable securities 267 3,227
Other current assets 520 415
------- -------
Total current assets 1,598 3,901

Investments in and net advances
to subsidiaries 51,301 45,139
Property, plant and equipment, at cost
less accumulated depreciation 2,084 1,743
Other assets 3,154 3,214
------- -------
$58,137 $53,997
======= =======


Liabilities and Shareholders' Equity
Current liabilities:
Current portion of bank and other debt $ 1,666 $ 1,174
Accounts payable and accrued liabilities 1,002 3,509
------- -------
Total current liabilities 2,668 4,683

Bank and other debt 1,495 837
Subordinated debentures - 1,505
Deferred income taxes 218 156

Shareholders' equity:
Common stock 3,141 3,075
Paid-in capital 19,479 18,565
Retained earnings 31,136 25,176
------- -------
Total shareholders' equity 53,756 46,816
------- -------
$58,137 $53,997
======= =======
</TABLE>


(Continued)


17
WATSCO, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For the Years Ended December 31,

(In thousands of dollars)

(Continued)


<TABLE>
<CAPTION>
(b) Statements of Income
- ------------------------
1995 1994 1993
------- --------- ------
<S> <C> <C> <C>
Equity in net income of subsidiaries $ 8,641 $ 7,721 $ 6,169
Investment income, net 185 127 361
General and administrative expenses (1,761) (2,574) (1,621)
Interest expense (258) (299) (425)
------- ------- -------
Income before taxes 6,807 4,975 4,484
Income tax benefit (A) 443 787 557
------- ------- -------
Net income $ 7,250 $ 5,762 $ 5,041
======= ======= =======

</TABLE>


(A) Income taxes are recorded at statutory rates receiving benefit for the
dividends received deduction and tax free interest.


(Continued)


18
WATSCO, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For the Years Ended December 31,
(In thousands of dollars)
(Continued)

<TABLE>
<CAPTION>
(c) Statements of Cash Flows
- ----------------------------
1995 1994 1993
---------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 7,250 $ 5,762 $ 5,041
Adjustments to reconcile net income to
net cash provided by (used in) operating activities-
Equity in net income of subsidiaries, net of cash
dividends of $2,599 in 1995, $4,678
in 1994 and $1,587 in 1993 (6,042) (3,043) (4,582)
Depreciation and amortization 39 32 58
Net investment gains (27) (6) (161)
Deferred tax provision (benefit) 62 (486) (508)
Noncash stock contribution to 40l(k) plan 149 137 111
Changes in operating assets and liabilities:
Other current assets (105) 115 (151)
Accounts payable and accrued liabilities (2,507) 1,329 (369)
Other, net 67 (460) (256)
-------- --------- ---------
Net cash provided by (used in) operating activities (1,114) 3,380 (817)
-------- --------- ---------
Cash flows from investing activities:
Cash used in acquisition in 1995 and 1993 (1) - (3,418)
Net proceeds from sales (purchases) of
marketable securities 2,960 (2,258) (906)
Net advances from (to) subsidiaries (119) 659 (2,989)
Other, net (360) (510) (318)
-------- --------- ---------
Net cash provided by (used in) investing activities 2,480 (2,109) (7,631)
-------- --------- ---------

Cash flows from financing activities:
Net borrowings (repayments) of long-term obligations (191) 17 (303)
Net proceeds from issuances of common stock 667 138 9,680
Cash dividends paid on common stock (1,160) (1,037) (887)
Other, net (130) (130) (70)
-------- --------- ---------

Net cash provided by (used in) financing activities (814) (1,012) 8,420
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents 552 259 (28)

Cash and cash equivalents at beginning of year 259 - 28
-------- --------- ---------
Cash and cash equivalents at end of year $ 811 $ 259 $ -
======== ========= =========

Supplemental disclosures:
Net income tax payments $ 4,522 $ 3,493 $ 4,350
Interest paid 264 285 432

</TABLE>

In 1995, 1994 and 1993, $164,000, $192,000 and $2,607,000, respectively, of 10%
Convertible Subordinated Debentures due 1996 were converted into Common Stock.

In May 1995, the Company effected a three-for-two stock split in the form of a
50% stock dividend for both classes of its common stock which had the effect of
increasing the Company's common stock account by $1,024,000 and reducing paid-in
capital and retained earnings by $371,000 and $653,000, respectively.


19
WATSCO, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994 and 1993
(In thousands of dollars)


ALLOWANCE FOR DOUBTFUL ACCOUNTS:

BALANCE, December 31, 1992 $2,767
Allowances from acquisitions 583
Additions charged to costs and expenses 315
Recoveries 73
Write-offs (726)
--------
BALANCE, December 31, 1993 3,012
Additions charged to costs and expenses 597
Recoveries 44
Write-offs (972)
--------
BALANCE, December 31, 1994 2,681
Allowances from acquisitions 453
Additions charged to costs and expenses 1,197
Recoveries 89
Write-offs (1,319)
--------
BALANCE, December 31, 1995 $3,101
========


20
Pursuant to the requirements of Section 13 or 15(d) 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.

March 29, 1996 By: /s/ Albert H. Nahmad
--------------------------------
Albert H. Nahmad, President


March 29, 1996 By: /s/ Ronald P. Newman
--------------------------------
Ronald P. Newman, Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Albert H. Nahmad Chairman of the Board and March 29, 1996
- -------------------------------- President (principal
Albert H. Nahmad executive officer)

/s/ Ronald P. Newman Vice President of Finance, March 29, 1996
- -------------------------------- Secretary and Treasurer
Ronald P. Newman (principal financial and
accounting officer)

/s/ D.A. Coape-Arnold Director March 29, 1996
- --------------------------------
D.A. Coape-Arnold

/s/ David B. Fleeman Director March 29, 1996
- --------------------------------
David B. Fleeman

/s/ James S. Grien Director March 29, 1996
- --------------------------------
James S. Grien

/s/ Paul F. Manley Director March 29, 1996
- --------------------------------
Paul F. Manley

/s/ Bob L. Moss Director March 29, 1996
- --------------------------------
Bob L. Moss

/s/ Roberto Motta Director March 29, 1996
- --------------------------------
Roberto Motta

/s/ Alan H. Potamkin Director March 29, 1996
- --------------------------------
Alan H. Potamkin

</TABLE>


21