It is important to note that the fourth quarter of each calendar year is highly seasonal due to the nature and timing of the replacement market for air conditioning, heating and refrigeration systems during the second and third quarters of each calendar year. Accordingly, the Company's fourth quarter financial results are disproportionately affected by this seasonality and the overall general economic conditions.
Earnings Per Share on an Adjusted-Basis vs. GAAP Basis
Results for the full year and fourth quarter of 2012 on a GAAP basis include a reduction of diluted earnings per share of 33 cents per share and 37 cents per share, respectively, relating to a $5.00 per share special dividend paid in October 2012. Diluted earnings per share on a GAAP basis were $2.70 and 4 cents for the full year and fourth quarter of 2012, respectively.
Cash Flow & DividendsOperating cash flow for the fourth quarter was $109 million and, for the full year 2012, was a record $173 million (approximately $5.46 per diluted share), far exceeding reported net income. Since 2000, Watsco’s operating cash flow was approximately $1.1 billion compared to net income of approximately $900 million, far surpassing the Company’s stated goal of generating cash flow greater than net income. At December 31, 2012, cash and cash equivalents were $74 million and borrowings were $316 million for a ‘net-debt’ position of $242 million. The Company’s debt-to-total-capitalization ratio is 24%. Dividends paid in 2012 increased 250% to $256 million, consisting of regular quarterly dividends totaling $2.48 per share and a special dividend of $5.00 per share paid in October 2012. In January 2013, the Company announced it established a regular quarterly dividend rate of 25 cents per share. Mr. Nahmad added: “2012 was a blockbuster year for cash flow and it was gratifying to pay the tax-efficient $5.00 special dividend to shareholders this past October. We expect strong cash flow in 2013 and we intend to reduce debt and evaluate the payment of an increased dividend before the end of the year. In the long-term, our philosophies for sharing increasing amounts of cash flow through higher dividends while maintaining a conservative financial position with continued capacity to build our network remain cornerstones of our company.”