Watsco
WSO
#1728
Rank
$12.27 B
Marketcap
$297.47
Share price
-1.22%
Change (1 day)
-28.30%
Change (1 year)
Watsco, Inc. is an American distributor of air conditioning, heating and refrigeration equipment and related parts and supplies.
Text size:
UNITED STATES
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, 1997

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:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED

Common Stock, $.50 par value New York Stock Exchange

Class B Common Stock, $.50 par value American Stock Exchange

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 25, 1998 was approximately $432,385,000.

The number of shares of common stock outstanding as of March 25, 1998 was
15,435,563 shares of Common Stock and 2,163,153 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 Shareholders for the year ended December 31, 1997, 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).
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WATSCO, INC.

----------------

INDEX TO ANNUAL REPORT
ON FORM 10-K
YEAR ENDED DECEMBER 31, 1997
<S> <C> <C>

PART I PAGE

ITEM 1. BUSINESS 1

ITEM 2. PROPERTIES 6

ITEM 3. LEGAL PROCEEDINGS 6

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6


PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 6
MATTERS

ITEM 6. SELECTED FINANCIAL DATA 6

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 6
RESULTS OF OPERATIONS

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 6

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

FINANCIAL DISCLOSURE 7

PART III

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 7

</TABLE>
PART I

This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding, among other items, (i) the
Company's business and acquisition strategies, (ii) potential acquisitions by
the Company, (iii) the Company's financing plans, and (iv) industry, demographic
and other trends affecting the Company's financial condition or results of
operations. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, certain of
which are beyond the Company's control. Actual results could differ materially
from these forward-looking statements as a result of several factors, including
general economic conditions, prevailing interest rates, competitive factors and
the ability of the Company to continue to implement its acquisition strategy. In
light of these uncertainties, there can be no assurance that the forward-looking
information contained herein will in fact transpire.

ITEM 1. BUSINESS

GENERAL

Watsco, Inc. (the "Registrant" or the "Company") was incorporated in 1956
and is the largest distributor of air conditioning and heating equipment and
related parts and supplies in the United States. Growth has been enhanced by
acquisitions and by the internal growth of existing businesses of the Company.
In 1989, the Company began 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 its strategy, Watsco has acquired over 20 distributors of air
conditioning and heating equipment and the Company operates in 22 states, with
leading positions in Florida, Texas and California, the three largest markets in
the country. The Company's revenue from its distribution operations have
increased from $64 million in 1989 to $635 million in 1997.

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.

RESIDENTIAL CENTRAL AIR CONDITIONING INDUSTRY

According to the Air Conditioning and Refrigeration Institute ("ARI"), the
market for residential central air conditioning, heating and refrigeration
equipment and related parts and supplies in the U.S. was approximately $19
billion in 1997 with unitary equipment shipments having grown at an annual rate
of 5.3% since 1990. Residential central air conditioners are manufactured
primarily by seven major companies that together account for approximately 90%
all units shipped in the U.S each year. These companies are: Carrier Corporation
("Carrier") (a subsidiary of United Technologies Corporation), Goodman
Manufacturing Corporation ("Goodman"), Rheem Manufacturing Company ("Rheem"),

-1-
International Comfort Products Corporation ("ICP"), American Standard Companies
Inc. ("American Standard"), York International Corporation ("York") and Lennox
Industries, Inc. The major manufacturers distribute their products primarily
through independent distributors who in turn supply the equipment and related
parts and supplies to contractors and dealers nationwide that sell to, and
install the products for, the consumer.

Residential central air conditioning and heating equipment is sold to both
the replacement and the homebuilding markets. 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 ARI, over 70 million central air conditioning
units have been installed in the United States in the past 20 years, with
approximately 60% of those units installed in the sunbelt. Many 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 mechanical life of central air
conditioners varies by region due to usage and is estimated to range from eight
to 12 years in Texas and Florida to approximately 18 to 20 years in California.
These three states are the largest markets for air conditioning and heating
equipment in the United States, based on annual unit sales.

The Company also sells products used in the refrigeration industry. Such
products include condensing units, compressors, evaporators, valves, walk-in
coolers and ice machines for industrial and commercial applications. The Company
distributes products manufactured by Copeland Compressor Corporation
("Copeland"), Tecumseh Products Company, The Manitowoc Company, Inc. and
Scotsman Industries, Inc.

BUSINESS AND ACQUISITION STRATEGY

The Company focuses on satisfying the needs of the higher margin
replacement market, where customers generally demand immediate, convenient and
reliable service. In response to this need, the Company has adopted a strategy
of (i) offering complete product lines, including all equipment and components
necessary to install or repair a central air conditioner, furnace or
refrigeration system, (ii) maintaining multiple warehouse locations in a single
metropolitan market for increased customer convenience, and (iii) maintaining
well-stocked inventories to ensure that customer orders are filled in a timely
manner. The Company believes this strategy provides a competitive advantage over
smaller, lesser-capitalized competitors who are unable to commit resources to
open additional locations, maintain the same inventory levels and offer the
product variety as the Company. The Company also believes it has a competitive
advantage over factory-owned distributors who typically do not maintain
inventories of all parts and supplies and whose limited number of warehouse
locations make it difficult to meet the time-sensitive demands of the
replacement market.

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, in many of the markets the Company serves, remains below levels of
the mid-1970s to mid-1980s. However, should homebuilding increase in those
markets, the Company is well positioned to benefit from such increases.

The Company's acquisition strategy is to establish a network of
distribution facilities and, since 1989, it has acquired over 20 distributors of
air conditioning, heating and refrigeration products. The geographical focus of
the Company's strategy has been primarily on the sunbelt where U.S. population
growth is greatest, weather patterns are predictably hot and air conditioning is
seen as a necessity. The Company's growth strategy seeks to enhance the value of
acquired operations by better serving the "one-stop" shopping needs of
contractors. This includes broadening product lines and committing other capital
resources to develop the acquired businesses, including expanding existing
locations and opening new locations.

-2-
The Company's distribution operations run on a decentralized basis in
recognition of the value of the long-term relationships established between the
distributors and their customers. The Company seeks to preserve the identity of
acquired businesses by retaining their management and sales organizations,
maintaining the product brand name offerings previously distributed by them, and
selectively expanding complementary product offerings. The Company believes this
strategy builds on the value of the acquired operations by creating additional
sales opportunities, improving operating efficiencies and attaining greater
leveraging of expenses.

The Company actively seeks new or expanded territories of distribution from
the major equipment manufacturers.

The Company also maintains an active acquisition program. The following is
a description of the Company's acquisitions completed in 1997:

COASTLINE DISTRIBUTION, INC. AND ADDITIONAL OPERATIONS. In January 1997,
the Company completed the acquisition of the common stock of Coastline
Distribution, Inc. ("Coastline") and the purchase of substantially all of the
operating assets of four additional operations from ICP. Coastline and the
additional operations are wholesale distributors of residential air conditioning
and heating products manufactured by ICP and had revenue of approximately $93
million in the year prior to acquisition.

COMFORT PRODUCTS DISTRIBUTING AND CENTRAL PLAINS DISTRIBUTING. In March
1997, the Company completed the purchase of substantially all of the operating
assets and assumption of certain liabilities of Comfort Products Distributing
("Comfort Products") and Central Plains Distributing ("Central Plains") from
Carrier. Comfort Products and Central Plains are wholesale distributors of
residential air conditioning and heating products manufactured by Carrier.
Comfort Products and Central Plains had revenue of approximately $65 million in
the year prior to acquisition.

BAKER DISTRIBUTING COMPANY. In September 1997, the Company completed the
purchase of all the issued and outstanding capital stock of Baker Distributing
Company ("Baker"), a wholesale distributor of air conditioning, refrigeration
and heating products. Baker's product offerings include products manufactured by
Goodman, ICP and Copeland. Baker had revenue of approximately $148 million in
the year prior to acquisition.

OTHER. During 1997, the Company completed nine other acquisitions of
wholesale distributors of air conditioning, heating and refrigeration products.
The acquisitions were made either in the form of the purchase of the outstanding
common stock or the purchase of the net assets and business of the respective
sellers. These acquisitions added 37 locations and had combined revenue of $66
million for the most recently completed fiscal year.

RECENT DEVELOPMENTS

In January 1998, three of the leading equipment manufacturers granted the
Company rights to distribute their residential and light commercial equipment in
key U.S. markets: ICP granted the right to distribute "Tempstar" brand-name
products in California, Arizona and Atlanta, Georgia and surrounding areas;
American Standard granted the right to distribute "American Standard" brand-name
products in North Carolina; and Carrier granted the right to distribute "Bryant"
brand-name products in Kansas City and surrounding areas in Missouri and Kansas.

In February and March 1998, the Company completed five acquisitions of
wholesale distributors of air conditioning and heating products. The
acquisitions were made either in the form of the purchase of the outstanding
common stock or the purchase of the net assets and business of the respective
sellers.

-3-
Combined revenue for these distributors for the most recently completed fiscal
year was approximately $32 million.

DESCRIPTION OF BUSINESS

PRODUCTS The Company sells a complete line of products 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,
furnace or refrigeration system. The products distributed by the Company in all
of its markets consist of: (i) equipment, including residential central air
conditioners ranging from 1-1/2 to 5 tons*, light commercial air conditioners
ranging up to 20 tons, gas, electric and oil furnaces ranging from 50,000 to
150,000 BTUs and other specialized equipment; (ii) parts, including replacement
compressors, evaporator coils, thermostats, motors and other component parts;
(iii) supplies, including insulation material, refrigerants, ductwork, grills,
registers, sheet metal, tools, copper tubing, concrete pads, tape, adhesives and
other ancillary supplies. With the purchase of Comfort Products and Central
Plains from Carrier, the Company also sells commercial air conditioning and
heating equipment and systems ranging from 20 to 400 tons throughout six
midwestern states.

Sales of air conditioning and heating equipment accounted for approximately
54% of revenue for 1997. Sales of parts and supplies (currently representing
over 1,800 different vendors) comprised the remaining revenue.

DISTRIBUTION AND SALES The Company currently operates from 275 locations,
most of which are located in regions which the Company believes have favorable
demographic trends. The Company maintains well-stocked inventories at each
warehouse location to meet the immediate needs of its customers. This is
accomplished by transporting inventory between locations daily and either
directly delivering products to customers with the Company's fleet of over 400
trucks or making the products available for pick-up at the location nearest to
the customer. The company has over 300 commissioned salespeople with an average
of more than 10 years of experience in the residential central air conditioning
and heating equipment distribution industry.

MARKETS The Company's network serves 22 states from 275 locations. The
Company's primary markets in the sunbelt include (in order of market size):
Texas, Florida, California, Georgia, North Carolina, Tennessee, Arizona,
Virginia, Alabama, Louisiana, South Carolina, Oklahoma, Arkansas, Mississippi,
and Nevada. The Company also serves the midwestern states of Missouri, Kansas,
Nebraska, Iowa, North Dakota and South Dakota. The Company also distributes
products on an export basis in substantially all of Latin America and the
Caribbean Basin.

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 conditioning, heating and refrigeration systems.
The Company currently serves over 35,000 customers, with no single customer in
1997 accounting for more than 1% of consolidated revenue. 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 locations.
Management believes that the Company successfully competes with other
distributors primarily on the basis of its experienced sales organization,
strong service support, high quality reputation and broad product lines.

- ---------
* 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.

-4-
KEY SUPPLIERS The Company maintains significant relationships with Carrier,
Goodman, Rheem, ICP, American Standard and York, each a leading manufacturer of
residential central air conditioning and heating equipment in the United States.
Each manufacturer has a well-established reputation of producing high-quality,
competitively priced products. The Company believes the manufacturers' current
product offerings, quality, serviceability and brand-name recognition allow the
Company to operate favorably against its competitors. To maintain brand-name
recognition, the manufacturers provide national advertising and participate 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 67% 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 made approximately 52% of its total 1997 purchases from these
suppliers. A significant interruption in the delivery of products would impair
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
these manufacturers' products and their ability to continue to manufacture
products that comply with laws relating to environmental and efficiency
standards. However, the Company believes that its sales of other complimentary
equipment products and continued emphasis to expand the sale of parts and
supplies are mitigating factors against such risks.

DISTRIBUTION AGREEMENTS The Company has distribution agreements with each
of its key equipment suppliers, either on an exclusive or non-exclusive basis,
for terms generally ranging from one to ten years. Certain of the distribution
agreements contain certain provisions that restrict or limit the sale of
competitive products in the markets served. Other than the markets where such
restrictions and limitations may apply, the Company may distribute other
manufacturers' lines of air conditioning or heating equipment.

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 several air conditioning and heating equipment manufacturers which
distribute a significant portion of their products through their own
distribution organizations in certain markets. Competition within any given
geographic market is based upon product availability, customer service, price
and quality. 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 distribution operations employed over 2,000 persons as of February 28,
1998. 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 central air conditioning replacement
market is highest in the second and third quarters with demand for heating
equipment usually highest in the fourth quarter. Demand related to the new
construction sectors throughout most of the sunbelt markets is fairly even
during the year excepting for dependence on housing completions and related
weather and economic conditions.

-5-
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.

DISCONTINUED OPERATIONS

The Company has historically operated two other businesses distinct from
its distribution operations: Watsco Components, Inc. ("Components"), a
manufacturing operation and Dunhill Staffing Systems, Inc. ("Dunhill"), a
personnel services business. In November 1997, the Company's Board of Directors
approved a plan for the divestment of Components and Dunhill. See Notes to
Consolidated Financial Statements included in the Company's 1997 Annual Report
for further information.


ITEM 2. PROPERTIES

The Company operates 275 locations in the U.S. having approximately 4.5
million square feet of space, of which approximately 4.0 million square feet is
leased. The Company believes that its facilities are well maintained and
adequate to meet its needs.

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, 1997.

PART II

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

Page 28 of the 1997 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, 1997, 1996 and 1995 and is incorporated herein by
reference.

ITEM 6. SELECTED FINANCIAL DATA

Page 8 of the Company's 1997 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 1997 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 1997 Annual Report contain the 1997
and 1996 Balance Sheets and other financial statements for the years ended
December 31, 1997, 1996 and 1995, together with the report thereon of Arthur
Andersen LLP dated February 11, 1998, are incorporated herein by reference.

-6-
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

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
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PAGE NO. IN
ANNUAL REPORT
<S> <C> <C> <C>
(a) Financial Statements, Financial Statement Schedules and Exhibits

(1) Financial Statements (incorporated by reference from the 1997
Annual Report of Watsco, Inc.):

Consolidated Statements of Income for the years
ended December 31, 1997, 1996 and 1995 12
Consolidated Balance Sheets as of December 31, 1997 and 1996 13
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995 14
Consolidated Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995 15
Notes to Consolidated Financial Statements 16-25
Report of Independent Certified Public Accountants 26
Selected Quarterly Financial Data (Unaudited) 27

PAGE NO. IN
FORM 10-K

(2) Financial Statement Schedule:
For the three years ended December 31, 1997:

Report of Independent Certified Public Accountants on Schedule S-1

Schedule II. Valuation and Qualifying Accounts S-2
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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 Financial Statements or notes thereto.

(3) Exhibits: The following list of exhibit includes exhibits
submitted with this Form 10-K as filed with the
SEC and those incorporated by reference to other
filings.

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 for the
quarterly period ended June 30, 1995 and incorporated herein by
reference).

-7-
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 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).

4.2 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 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).

10.6 Amendment dated February 6, 1996 to Distributor Agreement dated
December 30, 1998 between Rheem Manufacturing Company and Gemaire
Distributors, Inc. (filed as Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and
incorporated herein by reference).

10.7 Amendment dated February 6, 1996 to Distributor Agreement dated May
25, 1993 (and as amended by Supplemental Agreement dated as of June
1, 1995) between Rheem Manufacturing Company and Comfort Supply,
Inc. (filed as Exhibit 10.12 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 and incorporated
herein by reference).

10.8 Amendment dated February 6, 1996 to Distributor Agreement dated
October 15, 1990 between Rheem Manufacturing Company and Heating &
Cooling Supply, Inc. (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996 and incorporated herein by reference).

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10.9    Amended and Restated Revolving Credit and Reimbursement Agreement
dated August 8, 1997 by and among Watsco, Inc., NationsBank, N.A.
(Agent) and Barnett Bank, N.A., First Union National Bank, Suntrust
Bank (Co-Agents), and the Lenders Party Hereto from Time to Time
(filed as Exhibit 10.18 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1997 and incorporated herein by
reference).

10.10 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).

10.11 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).

10.12 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).

10.13 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).

10.14 Employment Agreement and Incentive Plan dated January 31, 1996 by
and between Watsco, Inc. and Albert H. Nahmad (filed as Exhibit
10.20 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996 and incorporated herein by
reference).

10.15 Watsco, Inc. 1996 Qualified Employee Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Registration Statement on Form S-8
(333-10363) and incorporated herein by reference).

10.16 Amendment Agreement No. 1 to Amended and Restated Revolving Credit
and Reimbursement Agreement dated February 20, 1998 by and among
Watsco, Inc., the Lenders hereto and NationsBank National
Association.#

13. 1997 Annual Report to Shareholders (with the exception of the
information incorporated by reference into Items 1, 5, 6, 7 and 8
of this Form 10-K, the 1997 Annual Report to Shareholders is
provided solely for the information of the Securities and Exchange
Commission and is not deemed "filed" as part of this Form 10-K). #

21. Subsidiaries of the Registrant. #

23. Consent of Independent Certified Public Accountants. #

27. Financial Data Schedule. #

Note to exhibits:

# Submitted electronically herewith.

(b) Reports on Form 8-K:

No reports on Form 8-K were filed by the Registrant during the
fourth quarter of 1997.

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SIGNATURES

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 30, 1998 By: /S/ ALBERT H. NAHMAD
--------------------------------
Albert H. Nahmad, President

March 30, 1998 By: /S/ BARRY S. LOGAN
--------------------------------
Barry S. Logan, 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 30, 1998
- ------------------------- President (principal
Albert H. Nahmad executive officer)

/S/ BARRY S. LOGAN Vice President and March 30, 1998
- ------------------------- Secretary (principal
BARRY S. LOGAN accounting officer)

/S/ CESAR L. ALVAREZ Director March 30, 1998
- -------------------------
Cesar L. Alvarez

/S/ DAVID B. FLEEMAN Director March 30, 1998
- -------------------------
David B. Fleeman

/S/ PAUL F. MANLEY Director March 30, 1998
- -------------------------
Paul F. Manley

/S/ BOB L. MOSS Director March 30, 1998
- -------------------------
Bob L. Moss

/S/ ROBERTO MOTTA Director March 30, 1998
- -------------------------
Roberto Motta

/S/ RONALD P. NEWMAN Director March 30, 1998
- -------------------------
Ronald P. Newman

/S/ ALAN H. POTAMKIN Director March 30, 1998
- -------------------------
Alan H. Potamkin
</TABLE>

- 10 -
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE

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 February 11, 1998. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The accompanying
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states 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,
February 11, 1998.

S-1
WATSCO, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 1997, 1996 and 1995
(In thousands)

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

BALANCE, December 31, 1994 $2,369
Allowance from acquisitions 453
Additions charged to costs and expenses 1,145
Write-offs, net (1,091)
------
BALANCE, December 31, 1995 2,876
Allowances from acquisitions 110
Additions charged to costs and expenses 1,432
Write-offs, net (1,559)
------
BALANCE, December 31, 1996 2,859
Allowances from acquisitions 3,191
Additions charged to costs and expenses 1,329
Write-offs, net (1,827)
------
BALANCE, December 31, 1997 $5,552
======




S-2
EXHIBIT INDEX

EXHIBIT DESCRIPTION
------- -----------

10.16 Amendment Agreement No. 1 to Amended and Restated Revolving Credit
and Reimbursement Agreement dated February 20, 1998 by and among
Watsco, Inc., the Lenders hereto and NationsBank National
Association.

13. 1997 Annual Report to Shareholders (with the exception of the
information incorporated by reference into Items 1, 5, 6, 7 and 8
of this Form 10-K, the 1997 Annual Report to Shareholders is
provided solely for the information of the Securities and Exchange
Commission and is not deemed "filed" as part of this Form 10-K).

21. Subsidiaries of the Registrant.

23. Consent of Independent Certified Public Accountants.

27. Financial Data Schedule.