UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §
240.14a-12
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Watsco, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy
Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and
0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11
(set forth the amount
on which the filing fee is calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials:
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Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2)
and identify the filing for which
the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Watsco, Inc.
2665 South Bayshore Drive, Suite 901
Miami, Florida 33133
NOTICE OF THE 2017 ANNUAL MEETING OF SHAREHOLDERS
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Date:
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Monday, June 5, 2017
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Time:
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9:00 a.m., Eastern Daylight Time
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Place:
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Washington Duke Inn
3001
Cameron Boulevard
Durham, North Carolina 27705
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Purpose:
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1. For our holders of Common stock to elect one director and for our holders of Class B
common stock to elect two directors.
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2. To consider and vote on a
non-binding
advisory
resolution regarding the compensation of our named executive officers.
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3. To consider and vote on a
non-binding
advisory
resolution on the frequency of the
non-binding
advisory resolution regarding the compensation of our named executive officers.
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4. To ratify the appointment of KPMG LLP as our independent registered public accounting firm
for the 2017 fiscal year.
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5. To consider any other business that is properly presented at the
meeting.
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Who May Vote:
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You may vote if you were a record owner of our Common stock (NYSE: WSO) or our Class B common stock (NYSE: WSOB) at the close of business on April 7,
2017.
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Proxy Voting:
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Whether or not you expect to be present at the meeting, please sign and date the enclosed proxy card, and return it in the enclosed
pre-addressed
envelope as promptly as possible. No postage is required if mailed in the United States.
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By order of the Board of Directors,
BARRY S. LOGAN
Senior Vice President and Secretary
April 28, 2017
This is an important meeting, and all shareholders of record as of April 7, 2017 are invited to attend the meeting and vote in person. We respectfully urge those shareholders who are unable to
attend the meeting in person to execute and return the enclosed proxy card as promptly as possible in the enclosed return envelope. No postage is required if mailed in the United States. Any shareholder who executes a proxy card may nevertheless
attend the meeting, revoke his or her proxy and vote his or her shares in person.
NOTICE: Brokers are not permitted to vote on
Proposals 1, 2 or 3 in this Proxy Statement without instructions from the beneficial owner of shares entitled to vote at the meeting. Therefore, if you hold your shares through a broker, bank or other nominee and you do not vote your shares in one
of the ways described in this Proxy Statement, then your shares will not be voted in respect of Proposals 1, 2 or 3 contained in this Proxy Statement.
TABLE OF CONTENTS
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To be voted on at the meeting
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WATSCO, INC.
2665 South Bayshore Drive, Suite 901
Miami, Florida 33133
PROXY STATEMENT
Important Notice Regarding the Availability of Proxy Materials for the Annual Shareholders Meeting to Be Held on
June 5, 2017
The Companys 2016 Annual Report and this Proxy Statement are available at:
www.watsco.com
You are receiving this Proxy Statement because you owned shares of Watsco, Inc. Common stock or Class B common stock as of April 7, 2017, which entitles you to vote those shares at our 2017
annual meeting of shareholders. Our Board of Directors (referred to as the Board), is soliciting proxies from shareholders who wish to vote their shares at the meeting. By using a proxy, you can vote even if you do not attend the meeting. This Proxy
Statement describes and provides information about the matters on which you are being asked to vote so that you can make an informed decision. Watsco, Inc. is referred to in this document as Watsco, we, us, our and the Company.
This Proxy Statement and the enclosed form of proxy are first being mailed to our shareholders on or about April 28, 2017.
Shareholders should review the information contained in this Proxy Statement together with our 2016 Annual Report, which accompanies this Proxy Statement.
Our Internet website and the information contained therein or linked thereto are not incorporated by reference or otherwise made a part of this Proxy Statement.
INFORMATION ABOUT OUR ANNUAL MEETING
When and where is the annual meeting?
The annual meeting will be
held on Monday, June 5, 2017, at 9:00 a.m., Eastern Daylight Time at the Washington Duke Inn, 3001 Cameron Boulevard, Durham, North Carolina 27705.
Who may attend the annual meeting?
Shareholders of record as of
April 7, 2017 (which we refer to as the record date), or their duly appointed proxies, and our invited guests are permitted to attend the annual meeting. To gain admittance, you must bring valid photo identification to the meeting, and we will
verify your name against our shareholder list. If a broker or other nominee holds your shares and you plan to attend the meeting, you must bring a brokerage statement evidencing your share ownership as of the record date, a legal proxy from the
broker to vote the shares that are held for your benefit and valid photo identification.
What is the purpose of the annual meeting?
Our 2017 annual meeting will be held for the following purposes:
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To vote on the election of directors as follows:
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a.
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for the holders of Common stock to elect Jason Epstein to serve as director until our 2020 annual meeting of shareholders, or until his successor is duly elected and
qualified; and
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b.
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for the holders of Class B common stock to elect Cesar L. Alvarez and Denise Dickins to serve as directors until our 2020 annual meeting of shareholders, or until
their respective successors are duly elected and qualified.
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2.
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To consider and vote on a
non-binding
advisory resolution regarding the compensation of our named executive officers.
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3.
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To consider and vote on a
non-binding
advisory resolution on the frequency of the
non-binding
advisory resolution regarding the compensation of our named executive officers.
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4.
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To ratify the appointment of KPMG LLP (referred to as KPMG) as our independent registered public accounting firm for the 2017 fiscal year.
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To vote on such other business, if any, as may properly come before the meeting.
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Who may vote?
The Board set April 7, 2017 as the record date
for the annual meeting. Holders of Watsco Common stock or Class B common stock at the close of business on the record date are entitled to vote their shares at the annual meeting, or any postponements or adjournments of the annual meeting.
There were 30,396,097 shares of our Common stock and 5,271,389 of Class B common stock issued and outstanding as of the
record date, all of which are entitled to be voted at the annual meeting.
A list of shareholders will be available at our
corporate office at 2665 South Bayshore Drive, Suite 901, Miami, Florida 33133 during the ten days immediately preceding the annual meeting, and this list will be available at the annual meeting itself for examination by any shareholder entitled to
attend the annual meeting.
What are the voting rights of Watsco shareholders?
Holders of our Common stock are entitled to one (1) vote per share, and holders of our Class B common stock are entitled to ten
(10) votes per share on each matter that is submitted to shareholders for approval.
Election of Directors
Holders of our Common stock vote separately to elect 25% of our directors (rounded up to the next whole number), which is presently three
(3) directors. Holders of our Class B common stock vote separately to elect 75% of our directors (rounded down to the next whole number), which is presently six (6) directors.
Other Matters
Holders of our Common stock and our Class B common
stock vote on a combined basis on all other matters or as required by applicable law.
How do I vote?
Shareholders of Record.
You are a shareholder of record if you are registered as a shareholder with our transfer agent, American
Stock Transfer & Trust Company, LLC. To vote by mail, simply mark, sign and date your proxy card and return it in the enclosed envelope. To vote in person, you must attend our annual meeting, bring valid photo identification and deliver
your completed proxy card in person.
Beneficial Shareholders.
You are a beneficial shareholder if a brokerage firm,
bank, trustee or other agent, referred to as a nominee, holds your shares. This is often called ownership in street name because your name does not appear on the list of our registered shareholders maintained by our transfer
agent. If you hold shares in street name, you will receive voting instructions from your brokerage firm, bank, trustee or other nominee. If you are a beneficial shareholder and would like to vote in person, then you must attend our annual meeting,
bring valid photo identification, bring a brokerage statement validating your share ownership as of the record date and obtain a legal proxy from your broker, bank or other nominee to vote the shares that are held for your benefit, attach it to your
completed proxy card and deliver it in person.
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How do I revoke my proxy and change my vote?
A shareholder of record may revoke a proxy by giving written notice of revocation to our Secretary at our corporate office before the
meeting, by delivering a duly executed proxy bearing a later date or by voting in person at the annual meeting. If you are a beneficial shareholder, you may revoke your proxy and change your vote by following your nominees procedures for
revoking or changing your proxy.
What are the voting recommendations of the Board?
The Board recommends that you vote:
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FOR the election of each of the director nominees named in this Proxy Statement;
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FOR approval of a
non-binding
advisory resolution regarding the compensation of our named executive officers;
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FOR ONE YEAR on the
non-binding
advisory resolution on the frequency of the
non-binding
advisory resolution regarding the compensation of our named executive officers; and
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FOR ratification of KPMG as the Companys independent registered public accounting firm for the 2017 fiscal year.
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What happens if I submit or return my proxy card without voting?
When you properly submit your proxy, the shares it represents will be voted at the annual meeting in accordance with your directions. If you properly submit your proxy with no direction, the proxy will be
voted:
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FOR the election of each of the director nominees named in this Proxy Statement;
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FOR approval of a
non-binding
advisory resolution regarding the compensation of our named executive officers;
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FOR ONE YEAR on the
non-binding
advisory resolution on the frequency of the
non-binding
advisory resolution regarding the compensation of our named executive officers;
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FOR ratification of KPMG as the Companys independent registered public accounting firm for the 2017 fiscal year; and
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In accordance with the recommendation of our Board of Directors FOR or AGAINST all other business as may properly be brought
before the annual meeting and at any adjournments or postponements of the annual meeting.
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What constitutes a quorum?
The presence at the meeting, in person or by proxy, of the holders of Common stock and Class B common stock
representing a majority of the combined voting power of the outstanding shares of common stock as of the record date will constitute a quorum, permitting the conduct of business at the annual meeting.
As of the record date, our directors and executive officers and entities affiliated with these persons owned (i) Common stock
representing 0.8% of the outstanding shares of Common stock and (ii) Class B common stock representing 89.2% of the outstanding shares of Class B common stock, together representing 56.9% of the aggregated combined votes of common
stock entitled to be cast at the annual meeting. Such persons and entities represent a majority of the combined voting power of the outstanding shares of common stock on the record date and thus constitute a quorum. We believe that such persons and
entities will vote all of their shares of Common stock and Class B common stock in favor of all proposals set forth in this Proxy Statement.
If less than a majority of the combined voting power of the outstanding shares of Common stock and Class B common stock is represented at the annual meeting, a majority of the shares so represented
may adjourn
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the annual meeting to another date, time or place. Notice need not be given of the new date, time or place if announced at the annual meeting before an adjournment is taken, unless the Board,
after adjournment, fixes a new record date for the annual meeting (in which case a notice of the adjourned meeting will be given to shareholders of record on such new record date, each of whom would be entitled to vote at the adjourned meeting).
How many votes are needed for the proposals to pass?
Election of Directors
Under our Amended and Restated
By-Laws,
if a quorum is present, to be elected as a director, a nominee must receive a
majority
of the votes of Common stock and Class B common stock, voting as separate classes to the extent they are
entitled to vote on a nominee, cast in favor of such nominees election.
A properly executed proxy marked WITHHOLD
VOTE with respect to the election of a director nominee will have the effect of a vote AGAINST the election of such nominee. Shareholders do not have the right to cumulate their votes for directors.
Approval of a
Non-Binding
Advisory Resolution Regarding the Compensation of our Named Executive Officers
If a quorum is present, approval requires that the number of votes cast at the annual meeting in favor of the resolution
exceeds the number of votes cast opposing the resolution.
Approval of a
Non-Binding
Advisory
Resolution on the Frequency of the
Non-Binding
Advisory Resolution Regarding the Compensation of our Named Executive Officers
If a quorum is present, the outcome of the vote on the frequency of the
non-binding
advisory resolution on the compensation of our named executive officers will be
determined by a plurality of the votes cast, which means that we will take under advisement the choice (every one year, two years or three years) that receives the most votes.
Ratification of KPMG as our independent auditor
Under our Amended and
Restated
By-Laws,
if a quorum is present, ratification of the appointment of our independent registered public accounting firm requires that a majority of the votes cast at the Annual Meeting are cast
FOR ratification.
What is the effect of abstentions?
Proxies received but marked ABSTAIN will be included in the calculation of the number of shares considered to be present at
the meeting for purposes of determining a quorum, but abstentions will not have an effect on the outcome of any proposal.
What are
broker
non-votes
and what effect do they have on the proposals?
Broker
non-votes
occur when a broker, bank, or other nominee holds shares in street
name for a beneficial owner, and that nominee does not vote the shares because it (i) has not received voting instructions from the beneficial owner and (ii) lacks discretionary voting power to vote those shares with respect to a
particular proposal. Broker
non-votes
are counted for purposes of determining whether or not a quorum exists for the transaction of business, but will not be counted as votes cast for or
against any proposal and will have no effect on the voting results for any proposal.
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A broker is entitled to vote shares held for a beneficial owner on routine
matters without instructions from the beneficial owner of those shares, which include the proposal to ratify KPMG as our independent public accounting firm for the 2017 fiscal year. On the other hand, absent instructions from the beneficial owner of
such shares, a broker is not entitled to vote shares held for a beneficial owner on
non-routine
matters, which include Proposals 1, 2 and 3 described in this Proxy Statement.
If you hold your shares in street name, it is critical that you provide your broker, bank, or other nominee with instructions on how to
cast your vote if you want it to count in the election of directors (Proposal 1) and with respect to the
non-binding
advisory resolutions (Proposals 2 and 3) described in this Proxy Statement. If you hold your
shares in street name, and you do not instruct your broker, bank, or other nominee how to vote, then it will not be voted for the election of directors or with respect to the
non-binding
advisory resolutions.
If any other routine matters are properly brought before the annual meeting in addition to Proposal 4, then brokers holding
shares in street name may vote those shares in their discretion for any such routine matters.
Who tabulates the votes?
Prior to the annual meeting, we will select one or more inspectors of election for the meeting. Such inspector(s) will
determine the number of shares of Common stock and Class B common stock represented at the meeting, the existence of a quorum and the validity and effect of proxies, and shall receive, count and tabulate ballots and votes and determine the
results thereof.
Who pays the cost of this proxy solicitation?
We pay the cost of soliciting your proxy, and we reimburse brokerage firms and others for forwarding proxy materials to you. In addition
to solicitation by mail, we may also solicit proxies by letter, facsimile,
e-mail,
telephone or in person. Our directors, officers and employees may participate in the solicitation of proxies without
additional consideration.
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DIRECTORS, EXECUTIVE OFFICERS & CORPORATE GOVERNANCE
Directors & Executive Officers
Our Amended and Restated Articles of Incorporation and Amended and Restated
By-laws
provide that our Board shall consist of no fewer than three nor more than nine
members, and that it shall be divided, as nearly as possible into three equal divisions, each division of which serves for a three-year term. We refer to directors elected by holders of our Common stock as Common Directors and we refer to directors
elected by holders of our Class B common stock as Class B Directors.
The names of our directors, executive officers
and director nominees and their respective ages, positions (including designation as a Common Director or Class B Director), biographies and qualifications as directors are set forth below.
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Name
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Age
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Position
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Albert H. Nahmad
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Chairman & Chief Executive Officer and Class B Director
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David C. Darnell
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Common Director
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Steven R. Fedrizzi (1)
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Common Director
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Barry S. Logan
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Senior Vice President, Secretary and Class B Director
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Ana M. Menendez
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Chief Financial Officer & Treasurer
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Bob L. Moss
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Class B Director
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Aaron J. Nahmad
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President and Class B Director
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George P. Sape
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Common Director
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Director Nominees
(2)
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Cesar L. Alvarez
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Nominated Class B Director
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Denise Dickins
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Current Class B Director
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Jason Epstein
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Nominated Common Director
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Mr. Fedrizzis current term ends at the 2017 Annual Meeting, and he is not standing for
re-election.
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Each nominee has been reviewed and recommended for nomination by our Nominating & Governance Committee and has consented to serve as a director if elected.
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Albert H. Nahmad
has been the visionary and leader of Watsco for over 40 years, having served as
our Chairman and Chief Executive Officer since 1972. Among his many contributions, Mr. Nahmad has been instrumental in the scaling of our business through acquisitions, the cultivation of strategic vendor relationships, and the development of
Watscos entrepreneurial culture. In 1988 Mr. Nahmad made the decision to pivot the Companys strategic focus from manufacturing to distribution of HVAC/R products. Since that time, Watscos market capitalization has grown from
$22 million to $5.3 billion, and its
25-year
compounded annual growth rate of total shareholder return has been 20.8%. With revenues exceeding $4 billion, Watsco has solidified its place as the
industry leader and now has approximately 5,050 employees serving approximately 88,000 contractor customers through a branch network of more than 560 locations.
Aaron J. (A.J.) Nahmad
has served as the President of the Company since January 2016 and as a director since 2011. He served as Vice President of Strategy & Innovation from July
2010 until January 2016 and as Director of Global Business Development beginning in 2005. He holds a B.A. from the University of Pennsylvania and a M.B.A. from New York Universitys Leonard N. Stern School of Business. He is the son of Albert
H. Nahmad. A.J. Nahmad has led the transformation of Watsco into a technology-enabled business. His promotion to President in January 2016 recognized this leadership and acknowledged the importance of the successful execution and adoption of these
innovations across the Watsco enterprise.
David C. Darnell
has served as a Board member since 2012. He retired
from Bank of America Corporation as Vice Chairman in June 2016 after a
37-year
career. He previously served as its
Co-Chief
Operating Officer
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from 2011 until his election as Vice Chairman of Global Wealth & Investment Management in August 2014. Mr. Darnells career has spanned nearly four decades, beginning as a
local credit analyst, working his way through the ranks from middle market banking group president to Florida commercial division group president in the 1990s. In subsequent years, he was active in the strategic growth of the bank and an active
leader in its merger and acquisition activities. Mr. Darnell brings significant operational, acquisition, governmental, financial, leadership-development capabilities and technology execution skills to the Board. He serves on the board of
directors of Granite Construction (member of the audit committee), a publicly-traded company. Mr. Darnell is a member of the Audit Committee.
Steven R. Fedrizzi
has served as a Board member since 2010. Mr. Fedrizzi is currently the Chairman and Chief Executive Officer of the International WELL Building Institute, a public
benefit company advancing buildings that put human wellness at the center of their design and operation. He was a
co-founder
and Chief Executive Officer of the U.S. Green Building Council (USGBC), a
non-profit
organization dedicated to sustainable building design and construction, and the Chief Executive Officer of the Green Building Certification Institute. Prior to his USGBC role, Mr. Fedrizzi had a
25-year
career at United Technologies Corporation, where he served as an
in-house
environmental consultant and in various sales and marketing positions. He is a recognized
leader in the global sustainability movement and an early promoter of green building methods. His skills and experience strengthen our ongoing commitment of providing consumers with energy efficient and environmentally responsible products, both
domestically and on an international basis. Mr. Fedrizzi serves on the boards of directors of a number of
non-profit
organizations. He is a member of the Compensation Committee. Mr. Fedrizzis
term as a Common director ends at the Annual Meeting, at which Mr. Fedrizzi is not standing for reelection.
Barry
S. Logan
has served as our Senior Vice President since November 2003 and as a director since 2011. Mr. Logan served as Vice President of Finance and Chief Financial Officer from 1997 to October 2003, as Treasurer from 1996 to 1998 and
in other capacities beginning in 1992. Mr. Logan is a certified public accountant. Mr. Logan was Watscos fourth corporate employee and is an integral participant in the Companys business development initiatives, financial and
other strategic activities during his
24-year
career. He is also the principal contact with the institutional shareholder community and, as such, is the principal contact for engagement with our shareholders.
Ana M. Menendez
has served as our Chief Financial Officer and Treasurer since November 2003, as Treasurer since
1998, and as Assistant Secretary since 1999. Ms. Menendez is a certified public accountant. Ms. Menendez supervises all financial and accounting aspects of the Company, including taxes, risk management, benefits, treasury and cash
management, the Companys system of internal control and other compliance activities. She also is the leader and principal contact for the Companys banking relationships and actively participates at a senior level in a variety of
strategic activities.
Bob L. Moss
was appointed to the Board in 2014 and previously served as a director from
1992 to 2012. Mr. Moss is a dynamic leader and has built a successful career in the construction industry over the last 48 years. He is the Chairman and Chief Executive Officer of Moss & Associates LLC, founded in 2004, which has grown
into one of the largest general contractors in the Southern United States with revenues of over $1 billion. Mr. Moss previously served as chairman of the board and Chief Executive Officer of Centex Construction Group, where he spent 23
years building Centex into the largest domestic general building contractor in the nation. Mr. Moss serves as our Vice Chairman of the Board and is a member of the Nominating & Governance Committee. Mr. Moss brings entrepreneurial
skills, business-building abilities, leadership development experience and a wealth of knowledge of the construction industry to our Board.
George P. Sape
was appointed to the Board in 2015 and previously served as a Watsco director from 2003 to 2014. Mr. Sape retired in 2015 as the Managing Partner of Epstein Becker and
Green, P.C., a New York-based law firm, after 29 years. Mr. Sape previously served as Vice President and General Counsel for Organizations Resources Counselors, Inc., a consulting services provider to a number of Fortune 500 companies and has
served as counsel or as an advisor to various congressional committees related to labor, education and public welfare.
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Mr. Sape also serves on the board of the University of Colorado School of Business. Mr. Sape is the Lead Independent Director and is a member of the Audit Committee, Compensation
Committee and Chair of the Nominating & Governance Committee. Mr. Sape brings core leadership skills from his experience as the managing partner of a large law firm and consulting for Fortune 500 companies as well as his experience in
governance matters and through private company directorships.
Director Nominees
Cesar L. Alvarez
previously served as a Watsco director from 1997 to 2015. Mr. Alvarez is a Senior Chairman of the
international law firm of Greenberg Traurig, P.A. (Greenberg). He previously served as Greenbergs Executive Chairman for more than three years, beginning in 2012, and as Greenbergs Chief Executive Officer from 1997 until his
election as Executive Chairman. During his 13 year tenure as Chief Executive Officer, he led the firm to become one of the top ten law firms in the United States by leading its growth from 325 lawyers in eight offices to approximately 1,850
attorneys in more than 36 locations in the United States, Europe, Asia and Latin America. Mr. Alvarez brings management experience as a current Senior Chairman and as former Chief Executive Officer of one of the nations largest law firms,
as well as his many years of corporate governance experience, both counseling and serving on the boards of directors of other publicly traded companies. He serves on the boards of Mednax, Inc. (chairman of the board and member of the executive
committee), Fairholme Funds, Inc., Intrexon Corporation (chair of the nominating and governance committee and member of the compensation committee) and the St. Joe Company (chair of the governance and nominating committee). Mr. Alvarez also serves
on the board of Sears Holdings Corporation (Sears) (member of the nomination and corporate governance committee). However, his service with Sears will end on May 10, 2017 as he is not seeking re-election for another term.
Dr.
Denise Dickins
has served as a Board member since 2007. Since 2006, she has been
employed by East Carolina University where she is currently an Associate Professor of Accounting and Auditing. She teaches courses in Auditing and Corporate Governance. From 2002 to 2006, while earning her Ph.D., she was an instructor of various
accounting courses at Florida Atlantic University. Prior to that, she was with Arthur Andersen LLP where she served in varying capacities from 1983 to 2002, including Partner in Charge of the South Florida Audit Division. Dr. Dickins is a
certified public accountant and certified internal auditor. Dr. Dickins has served on the board of directors of three other publicly traded companies: Steiner Leisure Ltd. (chair of the audit committee and a member of the governance and
nominating committee) until its sale in December 2015, Great Lakes Dredge & Dock (chair of the audit committee) until resigning in October 2015, and TradeStation Group, Inc. (lead director, chair of the nominating committee and member of
the audit and compensation committees) until its sale in June 2011. Dr. Dickins brings auditing, accounting, and corporate governance skills to the Board. She serves as chair of the Audit Committee and as the chair of the Compensation
Committee. She is also a member of the Nominating & Governance Committee.
Jason Epstein
is the
Managing Partner of Columbus Nova, the U.S. investment vehicle for the Renova Group, a multi-national, Zurich-based industrial holding company. He
co-leads
the investment activities for Columbus Nova, which
manages a variety of growth equity, private equity and fixed income assets. Prior to joining Columbus Nova in 2001, Mr. Epstein founded eLink Communications, a provider of broadband, networking and application services, and served as its Chief
Executive Officer. He also
co-founded
Chloes Soft Serve Fruit, which is sold in more than 10,000 stores nationwide. Mr. Epstein received a B.A. from Tufts University. Mr. Epstein has served as
a board member of Cyalume Technologies Holdings, Inc., a publicly-traded technology company, since 2008. He also served as a board member of CIFC Corp., a publicly-traded debt manager specializing in U.S. corporate debt strategies, from 2010
until its sale in 2016 where he served as chair of its nominating & corporate governance committee. Mr. Epstein brings entrepreneurial skills, investment expertise, management experience and technology insights to the Board.
Corporate Governance
Overall Role of the Board.
Our business and affairs are managed under the direction of our Board, which is the Companys ultimate decision-making body, except with respect to
those matters reserved to our shareholders.
8
The Boards mission is to maximize long-term shareholder value. Our Board establishes our overall corporate policies, selects and evaluates our executive management team, which is charged
with the conduct of our business, and acts as an advisor and counselor to executive management. Our Board also oversees our business strategy and planning, as well as the performance of management in executing our business strategy and assessing and
managing risks.
Board Leadership Structure
Role of Chairman & CEO.
Our Board regularly reviews its structure and composition taking into consideration the Companys performance and expectations for the future. Under the
leadership of Albert H. Nahmad over the last 25, 10, and five years, annual total shareholder returns (the measurement of stock appreciation, including the reinvestment of dividends) on a compounded basis have been 20.8%, 16.4%, and 22.2%,
respectively, compared to average returns of the S&P 500 over these same periods of 3.6%, 2.8%, and 4.9%, respectively. The Board believes the Companys track record of success reflects Mr. Nahmads effective leadership and
creativity in devising and executing the Companys strategic initiatives and in confronting its challenges. As Chairman and CEO, he facilitates a strong collaboration between management and the independent members of the Board. Accordingly, the
Board believes that the Company and its shareholders are best served by having Mr. Nahmad continue to serve as Chairman and CEO.
Lead Independent Director.
To facilitate and strengthen the Boards independent oversight of the Companys strategies, performance and succession planning, and to uphold effective
governance standards, the Board has developed the role of a lead independent director. The position of lead independent director is currently held by George P. Sape, who also serves as Chairman of the Nominating & Governance Committee. As
Lead Independent Director, Mr. Sape has the following duties and responsibilities:
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advise the Chairman as to an appropriate schedule of Board meetings.
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review and provide the Chairman with input regarding the agendas for the Board meetings.
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preside at all Board meetings at which the Chairman is not present, including mandatory executive sessions of the independent directors, and apprise
the Chairman of the issues considered.
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be available for direct communication with the Companys shareholders.
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call meetings of the independent directors when necessary or appropriate.
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perform such other duties as the Board may from time to time determine necessary.
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Risk Oversight.
As part of regular Board and committee meetings, our directors consider important external and internal
risks that may impact the Company. The full Board regularly reviews reports from management on various aspects of our business, including related risks, strategies and tactics for addressing them. At least annually, the Board reviews our CEO
succession planning as described in our Corporate Governance Guidelines. While the full Board has overall responsibility for risk oversight, the Board has delegated responsibility related to certain risks to the Audit Committee and the Compensation
Committee. The Audit Committee is responsible for overseeing the Companys financial reporting risks and monitors the effectiveness of the control and risk management processes established to manage these risks. The Compensation Committee has
overall responsibility for overseeing the Companys management of risks related to compensation for our named executive officers (referred to as NEOs), including our equity-based compensation plans.
Corporate Governance Guidelines.
Watscos Board strongly supports effective corporate governance and has consistently,
over many years, developed and followed a program of strong corporate governance. Watscos Nominating & Governance Committee is responsible for reviewing and updating the Companys Corporate Governance Guidelines on an annual
basis. Our Corporate Governance Guidelines are published on our website at www.watsco.com and are available in print to any shareholder who requests them from our Secretary.
9
Controlled Status.
Watsco is a controlled company as defined by
the New York Stock Exchange (referred to as the NYSE) because of our Chairman & CEOs effective voting control of 53.1% as of April 7, 2017; therefore, the Company is not required to comply with certain corporate governance
policies required of other publicly-traded companies that are not controlled companies. For example, the Board is not required to be composed of a majority of independent directors and the Company need not have a Compensation Committee or
Nominating & Governance Committee.
However
, the Board strives to establish policies and procedures that it believes are in the best interests of the Companys shareholders and, accordingly, has adopted a policy whereby
(i) the Companys Board is composed of a majority of independent directors and (ii) the Board has established both a Compensation Committee and a Nominating & Governance Committee each of which is composed entirely of
independent directors.
Director Independence.
The Board has adopted guidelines for independent directors who
serve on the Board that comply with applicable rules of the NYSE. Board member independence is reviewed at least annually to ensure that each
non-management
director and director nominee satisfies the
NYSEs independence guidelines. Based on this review, the Board affirmatively determined that each of the following directors and director nominees is independent under the NYSE guidelines: Cesar L. Alvarez, David C. Darnell, Dr. Denise
Dickins, Jason Epstein, Bob L. Moss and George P. Sape.
Codes of Ethics and Conduct.
The Board has adopted
codes of ethics and conduct that are designed to ensure that directors, officers, and employees of the Company are aware of their ethical responsibilities and avoid conduct that may pose risk to the Company. We maintain (i) an Employee Code of
Business Ethics and Conduct that is applicable to all employees, and (ii) a Code of Conduct for Executives that is applicable to members of our Board, our NEOs, and other senior operating and financial personnel. There were no amendments or
waivers from either code of conduct in 2016. Oversight of investigations of known or potential violations under either code of conduct is the responsibility of the Audit Committee.
Board Meetings.
The Board meets regularly during the year and holds special meetings and acts by unanimous written consent
whenever circumstances require. During 2016, the Board took action by unanimous written consent five times and held seven meetings. In 2016, all directors attended 78% or more of the aggregate number of meetings of the Board and the respective
committees on which the directors served. Independent directors meet at regularly scheduled executive sessions without management present. All of our directors are encouraged to attend our annual meeting of shareholders and all attended in 2016.
Board Committees.
During 2016,
the Board maintained an Audit Committee, a Compensation Committee, and a
Nominating & Governance Committee. Each committee is currently composed entirely of independent directors. The Committees keep the Board informed of their respective actions and provide assistance to the Board in fulfilling its oversight
responsibility to shareholders.
Each Committee operates under a formal charter that governs its duties and conduct, which are
reviewed and evaluated annually by the applicable committee. Any recommended changes to the charters are submitted to the Board for its approval. Copies of the current charters are available on our website at
www.watsco.com
, under the caption
Committees within the Corporate Governance section. The charters are also available in print to any shareholder who requests them in writing to our Investor Relations department at Watsco, Inc., Investor Relations, 2665 South Bayshore
Drive, Suite 901, Miami, Florida 33133.
10
The table below provides current committee membership information and the number of meetings
held in 2016:
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Name
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Audit
Committee
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Compensation
Committee
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Nominating &
Governance
Committee
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Denise Dickins
|
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Chair
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Chair
|
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X
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|
Bob L. Moss
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X
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|
David Darnell
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X
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|
|
|
|
|
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|
Steven R. Fedrizzi
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X
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|
George P. Sape
|
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X
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X
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Chair
|
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Number of Meetings Held
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6
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6
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1
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Audit Committee.
The Audit Committees functions include overseeing the integrity of
our financial statements and internal control over financial reporting, our compliance with legal and regulatory requirements, the qualifications of our independent registered public accounting firm and the performance of our internal audit function
and controls regarding finance, accounting, legal compliance and ethics that management and our Board have established. The Audit Committees responsibilities include, but are not limited to:
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overseeing and monitoring the integrity of our financial statements, our system of internal control over financial reporting, and our compliance with
legal and regulatory requirements as they relate to financial statements and accounting matters.
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appointing, terminating, compensating, retaining, evaluating, and overseeing the work of our independent auditor for the purpose of preparing or
issuing an audit report or performing other audit, review, or attest services for the Company.
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pre-approving
all
non-audit
services, if any, to be performed by our
independent auditor.
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overseeing the activities of the Companys internal audit function.
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reviewing our annual audited financial statements, quarterly financial statements, regulatory filings, earnings announcements and other public
announcements regarding our results of operations.
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reviewing and approving related party transactions.
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establishing and overseeing processes and procedures for the receipt, retention, and treatment of complaints and employee submissions about accounting,
internal controls or audit matters.
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overseeing administration of our codes of ethics and conduct, including procedures for dealing with reported violations to enable confidential and
anonymous reporting of allegedly improper activities.
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All Audit Committee members possess the required
level of financial literacy as defined in our Audit Committee charter, and all Audit Committee members qualify as audit committee financial experts as defined by applicable Securities & Exchange Commission (referred to as the
SEC) rules and regulations and meet the current standard of requisite financial management expertise as required by the NYSE and applicable SEC rules and regulations.
The Report of the Audit Committee, which is set forth in this Proxy Statement, further describes the Audit Committees responsibilities and its recommendation with respect to our audited consolidated
financial statements for the year ended December 31, 2016.
Compensation Committee.
The Compensation
Committee oversees our compensation programs, including equity-based compensation plans. The Compensation Committees responsibilities, which may not be delegated, include, but are not limited to:
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establishing an executive compensation philosophy for the Company.
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11
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designing and approving an executive compensation program that uses a mix of fixed and variable pay elements that support the Companys executive
compensation philosophy and emphasizes performance-based pay through incentive and other forms of longer-term compensation linked to Company performance and the creation of shareholder value, and recognizes Watscos goal to secure and retain
the services of top performing talent.
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determining the CEOs and Presidents base salaries and incentive compensation arrangements.
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reviewing, administering, interpreting and making recommendations regarding the Companys incentive compensation and equity-based compensation
plans.
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conducting the performance evaluations of the CEO and President.
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considering the results of the most recent shareholder advisory vote on executive compensation required by Section 14A of the Securities Exchange Act
of 1934, as amended (referred to as the Exchange Act) and evaluating the relationship between risk management policies or practices and compensation.
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periodically reviewing and making recommendations to the Board with respect to director compensation.
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Nominating
& Governance Committee.
Our Nominating & Governance
Committees purpose is to assist the Board in identifying individuals qualified to become members of our Board consistent with the criteria set forth in our Corporate Governance Guidelines, to help in the evaluation of the effectiveness of our
Board and its individual members, and to review and update our corporate governance principles. The Board may assume, change or add additional activities from
time-to-time
to assure the effective operation of the Board. The Nominating & Governance Committees activities include, but are not limited to:
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assisting the Chairman and the Board by identifying individuals qualified to become Board members.
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recommending for the Boards approval nominees for election to the Board by our shareholders.
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advising and making recommendations to the Board related to:
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(i)
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the composition and governance of the Board and its committees,
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(ii)
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the appointment of directors to committees of the Board, including chairpersons;
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(iii)
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compensation programs for
non-management
members of the Board in consultation with the Compensation Committee.
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reviewing director independence with respect to continuing and prospective directors.
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overseeing the annual evaluation of the Board, its individual members and performing a self-evaluation of the Committee.
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evaluating risks and exposures and advising the Board regarding director and management succession planning, corporate governance and overall board
effectiveness.
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making regular reports to the Board.
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Director Nominations.
The Board considers candidates for director who are recommended by the Nominating & Governance Committee, by other Board members and by management. The
Nominating & Governance Committee annually reviews the performance and contributions of individual Board members. To the extent they are candidates for
re-election,
the Nominating &
Governance Committee considers all aspects of each candidates qualifications and skills in the context of the Companys needs at that point in time, their diversity of experience and individual perspectives. When considering candidates as
potential Board members, the Board and the Nominating & Governance Committee evaluate a candidates ability to contribute to such
12
diversity. While not an exclusive list, the Nominating & Governance Committee considers the following important qualifications when evaluating a director candidate:
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commitment to representing the long-term interests of the Companys shareholders.
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entrepreneurial background including business-building skills.
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leadership ability, including leadership development experience.
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personal and professional ethics, integrity and values.
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practical wisdom and sound judgment.
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finance and accounting knowledge.
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familiarity with laws and regulations applicable to our business.
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When evaluating
re-nomination
of existing directors, the Nominating & Governance
Committee also considers the nominees past and ongoing effectiveness on the Board and, with the exception of the employee directors, their independence.
The Nominating & Governance Committee will consider candidates recommended by Watscos shareholders pursuant to written applications submitted to the Nominating & Governance
Committee, c/o Watsco, Inc., 2665 South Bayshore Drive, Suite 901, Miami, Florida 33133. The information required to be included in any such recommendation is set forth in our Second Amended and Restated Bylaws, and the general qualification and
specific qualities and skills established by the committee for directors are described above.
Director
ElectionMajority Vote.
Director nominees are elected by our shareholders based on a majority vote, voting as separate classes.
Director Compensation.
Historically, we typically granted
non-management
directors a stock option award upon their initial appointment to the Board
and paid these directors $1,000 for each board meeting attended in person. In July 2016, the Compensation and Nominating & Governance Committees jointly formalized and adopted a Director Compensation Policy intended to attract, retain, and
reward board members who are not employees of the Company, the terms of which are as follows:
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an annual grant of 3,000
non-qualified
stock options for Board service.
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an additional annual grant of 1,000
non-qualified
stock options for service on a Board committee; and
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annual cash compensation for chairpersons of Board committees as follows: Audit $30,000; Compensation $20,000; and Nominating & Governance
$10,000.
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We do not provide any tax
gross-ups
to our
non-management
directors, all of whom are solely responsible for their respective tax obligations as a result of their equity and cash compensation for Board service. Directors are reimbursed for reasonable expenses
incurred in connection with their activities as directors, including attendance at director-education seminars and conferences. Employee directors do not receive any compensation for their service on the Board. The Nominating & Governance
Committee reviews director remuneration along with the Compensation Committee and recommends to the Board any proposed changes to director compensation.
13
The following table sets forth the total compensation received by our
non-management
directors in 2016:
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Name
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Fees Earned or
Paid in Cash
($)
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Option
Awards
($)(1)
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Total
($)
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David C. Darnell
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$
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2,000
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$
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16,444
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$
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18,444
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Denise Dickins (2)
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$
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62,040
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$
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98,663
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$
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160,703
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Steven R. Fedrizzi (3)
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$
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22,040
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$
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16,444
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$
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38,484
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Paul F. Manley (4)
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$
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17,000
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$
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17,000
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Bob L. Moss (5)
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$
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7,000
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|
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$
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16,444
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$
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23,444
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George P. Sape
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$
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2,000
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$
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49,332
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$
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51,332
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(1)
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Represents the grant date fair value of awards computed in accordance with FASB ASC Topic 718. The Company will recognize this share-based compensation expense over the
relevant vesting period. For additional information regarding assumptions underlying the valuation of equity awards and the calculation method, please refer to Note 8 to our consolidated financial statements, which are contained in our Annual Report
to Shareholders, filed with the SEC as Exhibit 13 to our 2016 Annual Report on Form
10-K.
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(2)
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Includes $40,000 for service as
Co-chair
of the Audit Committee through June 30, 2016 and Chair of the Audit and
Compensation Committees for the period July 1, 2016 to December 31, 2016 and $20,040 as a member of a special committee assignment authorized by the Board.
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(3)
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Includes $20,040 as a member of a special committee assignment authorized by the Board. Mr. Fedrizzis current term ends at the 2017 Annual Meeting, and he is
not standing for
re-election.
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(4)
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Includes $15,000 for service as
Co-chair
of the Audit Committee and Chair of the Compensation Committee through the date of his
resignation from the board on June 30, 2016.
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(5)
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Includes $5,000 for service as Chair of the Nominating & Governance Committee.
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The following summarizes stock option awards outstanding for each
non-management
director as of
December 31, 2016:
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Name
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Outstanding
Option Awards
|
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David C. Darnell
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|
|
1,000
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Denise Dickins
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|
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13,500
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Steven R. Fedrizzi
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|
1,000
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Bob L. Moss
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1,000
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George P. Sape
|
|
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13,000
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Management Succession.
As reflected in our Corporate Governance Guidelines, one of the
Boards primary responsibilities includes planning for CEO succession and monitoring and advising on managements succession planning for other NEOs, with the goal of establishing an effective succession plan. The Board routinely discusses
management succession during the course of its meetings, including during sessions held by the Companys
non-management
directors.
Minimum Stock Ownership Requirement for Directors and Officers
.
In an effort to align the interests of our directors and NEOs with those of our shareholders, each director and NEO is
required to meet the following minimum stock ownership requirements:
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each director must own common stock or other equity of Watsco with a value of at least $100,000;
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our CEO and our President each must own common stock or other equity of Watsco with a value of at least $1,000,000; and
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other NEOs each must own common stock or other equity with a value of at least $250,000.
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Our directors and NEOs have two years from the date they became directors or NEOs to comply with these ownership requirements. Compliance
with the minimum stock ownership level will be determined on the date
14
when the grace period set forth above expires, and annually on each December 31 thereafter, by multiplying the number of shares held by each director and officer and the average closing
price of those shares during the preceding month. As of December 31, 2016, all of our directors and NEOs satisfied these minimum requirements. The number of shares (or other equity instruments) held by our directors and NEOs as of
December 31, 2016 is summarized in the Stock Ownership Table below.
Director Tenure.
Directors may be
re-elected
at the end of each term. The Board has not established term limits as we believe that directors who have developed insight into Watsco and its operations over time provide an increasing contribution to
the Board as a whole. To ensure the Board continues to generate new ideas and operate effectively, the Nominating & Governance Committee evaluates individual Board member performance and takes steps as necessary regarding continuing director
tenure. With respect to our incumbent
non-management
directors, as of the date of this Proxy Statement, two have served on the Board for more than 10 years (Mr. Moss and Mr. Sape), and two have served on
the Board for less than 10 years (Dr. Dickins and Mr. Darnell).
Shareholder Proposals.
Shareholders
interested in submitting a proposal for inclusion in our proxy materials for our 2018 annual meeting of shareholders may do so by following the procedures set forth in Rule
14a-8
promulgated by the SEC under
the Exchange Act. To be eligible for inclusion in such proxy materials, our Corporate Secretary must receive shareholder proposals no later than December 29, 2017. Any shareholder proposal submitted other than for inclusion in the proxy
materials for that meeting must be delivered to us no later than March 7, 2018, or such proposal will be considered untimely. If a shareholder proposal is received after March 7, 2018, we may vote in our discretion as to the proposal all
of the shares for which we have received proxies for the 2018 annual meeting of the shareholders.
Shareholder
Engagement.
The Board and management consider institutional shareholders as partners in our business and actively engage and communicate with them throughout the year. This engagement is accomplished through a combination of events,
including an annual investor day (during which directors, officers and a variety of leaders attend and participate), investor meetings, analyst conferences,
non-deal
road shows, headquarter visits and visits
to our business units. Our overall philosophy is to provide consistent access and build relationships with a long-term time horizon in mind. This engagement is not just held with investment decision-makers, but also with institutional
shareholders corporate governance leaders. In 2016, we met with a majority of the institutions with investments in our Company and also conducted meetings with the primary proxy advisory services to communicate the Companys track record,
cultural foundations and our unique use of restricted shares with long-term cliff vesting as part of our compensation philosophy. More information can be found at
www.watsco.com
in the Investor Relations section.
Communications with the Company and the Board.
Interested parties may communicate with the Company by letter addressed to
Investor Relations, Watsco, Inc., 2665 South Bayshore Drive, Suite 901, Miami, Florida 33133, or by
e-mail
to Investor Relations,
info@watsco.com
.
Interested parties may communicate with our Board by calling (800) 4WATSCO in the United States and leaving a message for the Lead
Independent Director, or by
e-mailing
our Lead Independent Director at presidingdirector@watsco.com (which can also be accessed via our website at
www.watsco.com
under the caption Lead
Director within the Corporate Governance section). Regardless of the method used, the Lead Independent Director will be able to view your unedited message and determine whether to relay your message to other members of the Board.
Corporate Governance Documents.
Please visit our website at
www.watsco.com
, under the section captioned
Corporate Governance for the following:
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Second Amended and Restated Articles of Incorporation and
By-laws
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Corporate Governance Guidelines and Director Independence
|
15
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Codes of Ethics and Conduct
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Committee Charters (Audit, Compensation and Nominating & Governance)
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These materials may also be requested in print by writing to our Investor Relations Department at Watsco, Inc., 2665 South Bayshore Drive,
Suite 901, Miami, Florida 33133.
Certain Relationships and Related Person Transactions
At least annually we review all relationships and transactions in which the Company and our directors or NEOs or their immediate family
members are participants to determine whether such persons have a direct or indirect material interest. We may use outside legal counsel to assist in such determination. As required under SEC rules, transactions in which we are a participant and the
amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest, are disclosed in this Proxy Statement. In addition, as set forth in the Audit Committee charter, the Audit Committee has
established a formal process by which related party transactions are subject to its review and approval.
The Audit Committee
considers the following factors, among others, in determining whether to approve transactions:
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the interests of all related persons in the transaction.
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whether the terms are fair, on an arms-length basis and entered into in good faith on reasonable terms.
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whether the transaction is material and is beneficial to the Company.
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the role the related person played.
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|
the structure of the transaction.
|
Pursuant to its related-party transaction policy, the Audit Committee reviewed and approved the following transactions using the criteria set forth above:
Moss & Associates, LLC serves as general contractor for the remodeling of our Miami headquarters, which began in 2016 and is
expected to continue through 2017. Moss & Associates, LLC has revenues in excess of $1 billion. Mr. Moss has served as its Chairman and Chief Executive Officer since its founding in 2004. He has served as a director of the Company
since 2014 and previously served as a director from 1992 to 2012. During 2016, payments made to Moss & Associates, LLC for construction services totaled approximately $291,000. Mr. Mosss direct interest in profits earned by
Moss & Associates, LLC is expected to be immaterial to Mr. Moss.
Bank of America provides bank account
administration services and has participated in the Companys revolving credit agreements since 1989 and previously served as an aircraft lessor under a lease that expired in March 2017. Mr. Darnell retired from Bank of America in June
2016, having served as Vice Chairman from August 2014 until his retirement. Mr. Darnell has served as a director of the Company since 2012, and as a member of the audit committee since his retirement from Bank of American in June 2016. Payments
made to Bank of America in 2016 included $2.0 million of lease payments, $1.8 million of bank account administrative fees and $500,000 of interest related to its participation in the Companys line of credit (the lead agent for which
is JP Morgan Chase). Bank of America has not provided, nor has it ever provided, advisory or investment banking services to the Company at any time in the Companys history. At December 31, 2016, Bank of America had assets of over $2
trillion and revenues of over $90 billion. Prior to his retirement, Mr. Darnell did not have a direct or indirect material interest in any of our transactions with Bank of America.
Mr. Alvarez, a director nominee, is a Senior Chairman of Greenberg, which receives customary fees for legal services. During 2016,
we paid Greenberg less than $120,000 for services performed. We currently anticipate that this arrangement will continue.
16
STOCK OWNERSHIP
The following table sets forth information regarding the beneficial ownership of our Common stock and Class B common stock by
(i) each shareholder known by us to beneficially own more than 5% of either class of our voting securities; (ii) each of our directors and director nominees; (iii) each of our named executive officers; and (iv) our directors and
executive officers as a group.
The table also contains, in the final column, the combined voting power of the voting
securities on all matters presented to the shareholders for their approval, except for the election of directors and for such separate class votes as are required by Florida law. Holders of our Common stock are entitled to one (1) vote per
share on each matter that is submitted to shareholders for approval and holders of our Class B common stock are entitled to ten (10) votes per share on each matter that is submitted to shareholders for approval. All information is as of
the record date, April 7, 2017. As of the record date, we had 30,396,097 shares of Common stock and 5,271,389 shares of Class B common stock issued and outstanding.
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|
|
|
|
|
|
|
Name and Address
of Beneficial Owner (1)
|
|
Common stock
Beneficially Owned (2)
|
|
|
Class B
common
stock
Beneficially Owned (2)
|
|
|
Combined
Percentage
of Voting
Power
|
|
|
Shares
|
|
|
Percent
|
|
|
Shares
|
|
|
Percent
|
|
|
Shareholders owning more than 5% of either class of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlackRock, Inc. (3)
|
|
|
2,221,975
|
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
2.7
|
%
|
The Vanguard Group (4)
|
|
|
1,936,484
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
Directors, Director Nominees and Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albert H. Nahmad (5)
|
|
|
1,353
|
|
|
|
*
|
|
|
|
4,413,599
|
|
|
|
83.7
|
%
|
|
|
53.1
|
%
|
Aaron J. Nahmad (6)
|
|
|
2,851
|
|
|
|
*
|
|
|
|
141,916
|
|
|
|
2.7
|
%
|
|
|
1.7
|
%
|
Barry S. Logan (7)
|
|
|
130,630
|
|
|
|
*
|
|
|
|
105,037
|
|
|
|
2.0
|
%
|
|
|
1.4
|
%
|
Ana M. Menendez (8)
|
|
|
70,294
|
|
|
|
*
|
|
|
|
41,904
|
|
|
|
*
|
|
|
|
*
|
|
Cesar L. Alvarez
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David C. Darnell (9)
|
|
|
6,088
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Denise Dickins (10)
|
|
|
12,296
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Jason Epstein
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven R. Fedrizzi (11)
|
|
|
2,559
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Bob L. Moss (12)
|
|
|
23,134
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
George P. Sape (13)
|
|
|
16,248
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
All directors, director nominees and named executive officers as a group (11 persons) (14)
|
|
|
265,453
|
|
|
|
*
|
|
|
|
4,702,456
|
|
|
|
89.2
|
%
|
|
|
56.9
|
%
|
(1)
|
Unless otherwise indicated in the footnotes below, (a) the address of each of the beneficial owners is c/o Watsco, Inc., 2665 South Bayshore Drive, Suite 901,
Miami, Florida 33133 and (b) each beneficial owner has sole voting and dispositive power with respect to all shares identified in the table above.
|
(2)
|
Percentages are based on 30,396,097 shares of Common stock and 5,271,389 shares of Class B common stock issued and outstanding as of the record
date. The percentage for each individual shareholder additionally includes the number of shares of common stock that such beneficial owner may acquire within 60 days of the record date pursuant to the exercise, exchange or conversion of options or
other rights. The number and percentage of shares beneficially owned is determined in accordance with the rules and regulations promulgated under the Exchange Act and the information is not necessarily indicative of beneficial ownership for any
other purpose. Under applicable rules of the SEC, although each named person and all directors and named executive officers as a group are deemed to be the beneficial owners of securities that may be acquired within 60 days through the exercise of,
exchange, or conversion of options
|
17
|
or other rights, the number of shares set forth opposite each shareholders name does not include shares of Common stock issuable upon conversion of our Class B common stock
notwithstanding that the Class B common stock is immediately convertible into Common stock on a
one-for-one
basis.
|
(3)
|
Based on Schedule 13G/A filed on January 27, 2017. BlackRock, Inc., a parent holding company, has sole dispositive power over 2,221,975 of such
shares and sole voting power over 2,052,063 of such shares. The address of BlackRock, Inc. is 55 East 52
nd
Street, New York, New York 10055.
|
(4)
|
Based on Schedule 13G/A filed on February 10, 2017. The Vanguard Group, an investment advisor, has sole dispositive power over 1,920,238 of such shares, shared
dispositive power over 16,246 of such shares, sole voting power over 14,968 of such shares and shared voting power over 2,539 of such shares. The address of The Vanguard Group is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.
|
(5)
|
The number of shares of Common stock indicated are owned pursuant to the Watsco, Inc. Amended and Restated Profit Sharing Retirement Plan & Trust, referred to
as the 401(k) Plan. The number of shares of Class B common stock indicated consists of (i) 297,079 shares directly owned, (ii) 498,845 shares owned by various family-related trusts, (iii) 1,330,000 shares owned by Albert Capital LP, a limited
partnership over which Mr. Nahmad maintains effective control, (iv) 25,618 shares owned by custodial accounts over which Mr. Nahmad is the custodian, (v) 1,415,622 shares issued under Restricted Stock Agreements held by Albert Henry
Capital L.P., a limited partnership over which Mr. Nahmad maintains effective control, (vi) 756,560 additional shares issued under Restricted Stock Agreements and (vii) 89,875 shares owned by the Albert H. and Jane D. Nahmad Foundation, Inc., a
charitable organization over which Mr. Nahmad shares voting power as a member of its board with other family members.
|
(6)
|
The number of shares of Common stock indicated consists of (i) 1,408 shares directly owned, (ii) 1,150 shares owned by Mr. Nahmads spouse and (iii) 293
shares owned pursuant to the 401(k) Plan. Mr. Nahmad disclaims beneficial ownership of the shares held by his spouse, except to the extent of his pecuniary interest therein. The number of shares of Class B common stock indicated consists
of (i) 63,605 shares directly owned and (ii) 78,311 shares issued under Restricted Stock Agreements.
|
(7)
|
The number of shares of Common stock indicated consists of (i) 19,046 shares directly owned, (ii) 2,384 shares owned pursuant to the 401(k) Plan, (iii) 450 shares owned
in an Individual Retirement Account and (iv) 108,750 shares issued pursuant to Restricted Stock Agreements. The number of shares of Class B common stock indicated consists of shares issued under Restricted Stock Agreements.
|
(8)
|
The number of shares of Common stock indicated consists of (i) 28,954 shares directly owned, (ii) 1,340 shares owned pursuant to the 401(k) Plan and (iii) 40,000 shares
issued pursuant to Restricted Stock Agreements. The number of shares of Class B common stock indicated consists of (i) 37,037 shares issued under Restricted Stock Agreements and (ii) 4,867 shares directly owned.
|
(9)
|
The number of shares of Common stock indicated consists of (i) 5,754 shares directly owned and (ii) 334 shares issuable upon exercise of presently exercisable options
granted pursuant to the Watsco, Inc. 2014 Incentive Compensation Plan (the 2014 Plan).
|
(10)
|
The number of shares of Common stock indicated consists of (i) 5,296 shares directly owned and (ii) 7,000 shares issuable upon exercise of presently exercisable options
granted pursuant to the 2014 Plan.
|
(11)
|
The number of shares of Common stock indicated consists of (i) 2,225 shares directly owned and (ii) 334 shares issuable upon exercise of presently exercisable options
granted pursuant to the 2014 Plan.
|
(12)
|
The number of shares of Common stock indicated consists of (i) 10,000 shares for which Mr. Moss shares voting and dispositive power with his spouse, (ii) 10,000
shares owned by a trust controlled by Mr. Moss, (iii) 1,800 shares owned in an Individual Retirement Account, (iv) 1,000 shares owned by Mr. Moss spouse and (v) 334 shares issuable upon exercise of presently exercisable options
granted pursuant to the 2014 Plan. Mr. Moss disclaims beneficial ownership of the shares held by his spouse, except to the extent of his pecuniary interest therein.
|
(13)
|
The number of shares of Common stock indicated consists of (i) 8,581 shares directly owned and (ii) 7,667 shares issuable upon exercise of presently exercisable options
granted pursuant to the 2014 Plan.
|
(14)
|
Includes shares beneficially owned by directors and named executive officers as described in footnotes (5)-(13).
|
18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than
10% of a registered class of our equity securities to file with the SEC reports of ownership of, and transactions in, our equity securities. To our knowledge, based solely on a review of copies of such reports that we received, our records and
written representations received from our directors, executive officers and certain of those persons who own greater than 10% of any class of our equity securities, for the year ended December 31, 2016, all applicable Section 16(a) filing
requirements were complied with on a timely basis.
19
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS
The following table contains information as of December 31, 2016 with respect to compensation plans (including
individual compensation arrangements) under which any of our equity securities are authorized for issuance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information (1)
|
|
Plan Category
|
|
Number of
securities to be
issued upon
exercise
of
outstanding
options, warrants
and rights
|
|
|
Weighted-
average exercise
price of
outstanding
options, warrants
and
rights
|
|
|
Number of securities
remaining available
for future issuance
under
equity
compensation plans
(excluding securities
reflected in
column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
294,250
|
(2)
|
|
$
|
122.80
|
|
|
|
1,921,008
|
(3)
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
294,250
|
|
|
$
|
122.80
|
|
|
|
1,921,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See Note 8 to the consolidated financial statements included in our 2016 Annual Report for additional information regarding share-based compensation and benefit plans.
|
(2)
|
Composed solely of Common stock.
|
(3)
|
Composed of 1,424,848 shares reserved for issuance under the 2014 Plan and 496,160 shares reserved for issuance under the Fourth Amended and Restated 1996 Qualified
Employee Stock Purchase Plan (referred to as the ESPP). An aggregate of 5,956 shares of Common stock were purchased under the ESPP in 2016.
|
20
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
Our
executive compensation program is grounded by the guiding principle that compensation should be highly dependent upon
long-term
shareholder returns. This key tenet of our compensation philosophy has driven the unique design of our program for
many years and has enabled our executive leadership team to stay solidly focused on long-term growthgenerating a compounded annual growth rate for total shareholder return of 20.8% over the last 25 years.
Our program is unique in comparison to other companies because of our approach to long-term incentives. All of the restricted shares we
have granted to more than 40 key leaders of our Company, including our NEOs, vest upon reaching retirement age (62 or older). Vesting may also occur at an even later date for those who extend their careers beyond age 62.
This means that our key
leaders will not know the value and cannot realize the value of their equity awards until they have spent their career with the Company.
We believe granting restricted stock effectively balances strategic risk-taking and long-term performance,
creates an ownership culture, and aligns the interests of high-performing leaders with the interests of our shareholders. Additionally, we believe these awards help build a sustainable future by ensuring that our executives are making the right
long-term decisions that will survive well past their retirement.
The Company began granting restricted stock awards to a
variety of leaders in 1997. As it relates to our NEOs,
none of their restricted share awards have ever vested.
On a weighted-average basis, our NEOs respective restricted share awards have been outstanding for approximately 10 years
and, due to the cliff-vesting upon retirement, will not begin to vest until 2022 for the Chairman & CEO and not until 2045 for the President. This long-term vesting demonstrates the distinct nature of this program, and the long-term
perspective that is at the core of the Companys compensation philosophy. Based on data provided by Equilar of the population of companies referred to in the table below, the duration of our cliff-vesting period is solely unique to Watsco.
This compensation discussion and analysis (referred to as CD&A) explains our executive compensation program for our NEOs
listed below. It also describes the Compensation Committees process for making pay decisions in 2016.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Years at Watsco
|
|
Albert H. Nahmad
|
|
Chairman & Chief Executive Officer (CEO)
|
|
|
44
|
|
Aaron J. (A.J.) Nahmad
|
|
President
|
|
|
11
|
|
Barry S. Logan
|
|
Senior Vice President & Secretary (SVP)
|
|
|
24
|
|
Ana M. Menendez
|
|
Chief Financial Officer & Treasurer (CFO)
|
|
|
18
|
|
2016 Business Performance.
Watsco produced another year of record performance in 2016:
|
|
|
Total shareholder return in 2016 was 30%.
|
|
|
|
Operating cash flow increased 25% to a record $278 million.
|
|
|
|
Dividends were raised 24% effective October 2016 to an annual rate of $4.20.
|
|
|
|
Sales increased 3% to a record $4.2 billion.
|
|
|
|
Operating income improved 3% to a record $346 million.
|
|
|
|
Earnings per share increased 5% to a record $5.15.
|
|
|
|
Raised our ownership interest in Carrier Enterprise Northeast LLC from 60% to 80% in two transactions (10% in November 2016 with a
follow-on
transaction for an additional 10% interest in February 2017).
|
21
|
|
|
Continued execution of a variety of scalable technologies to transform Watsco into a modern, data-based company to continue its outperformance in the
digital era. Technology spending was $22 million in 2016 compared to $19 million in 2015.
|
Philosophy,
Culture & Performance
Compensation Philosophy.
We measure success by our ability to create
shareholder value over significantly long periods of time. The vision and leadership of our entrepreneurial managers are at the core of our historic performance and it is their continued commitment to drive long-term sustainable growth that we
believe will solidify our ongoing success. To this end, we must attract, motivate and retain high-caliber talent. Accordingly, our compensation program is designed to reward our leadership
with an emphasis
on the long-term.
Pay-For-Performance &
Ownership
Culture.
For employees throughout Watsco, including our NEOs, we maintain a
pay-for-performance
culture that provides for a variety of potential rewards. Our
stock-based plans include 401(k) matching contributions to eligible employees, a voluntary employee stock purchase plan and the granting of stock options and restricted stock awards based on individual merit and measures of performance. Equity
compensation plans are designed to promote long-term performance, as well as to create and sustain long-term employee retention, continuity of leadership and an ownership culture whereby management and employees think and act as owners
of the Company. As described above, our restricted stock program is unique because an employees restricted shares vest entirely at the end of his or her career (generally at retirement age of 62 or later), subjecting such awards to significant
market, performance and forfeiture risks.
Concentrated Use of Long-Term Incentives Using Restricted Stock.
As
noted above, for our Chairman & CEO, the President and other NEOs, the primary method of long-term incentive compensation is stock-based compensation awards in the form of restricted stock. This method has been consistent over the
Companys history and is rooted in the principle that long-term, stock-based compensation is the most effective method to align shareholder interests with those of executives. To be fully effective and long-term focused, the Companys
stock awards have
cliff-vesting
upon retirement so that executives have the opportunity to build wealth, while facing significant risks over the vesting period. This program also extends beyond the NEOs to approximately 40 other key leaders
of Watsco.
The Company believes this balance of risk and reward over long periods is more effective than more conventional
equity-based programs that provide considerably shorter-term vesting and payouts, and effectively ties together the development of
shareholder wealth
along with
employee wealth
. The program also serves as an important method to retain
key leaders for the duration of their working careers.
22
Overall Performance.
Total shareholder return (referred to as TSR) measures
share price appreciation plus the reinvestment of dividends. The Company views total shareholder return as the simplest and most fundamental method of measuring long-term value creation for shareholders and considers it as a metric in determining
long-term incentive awards. Based on data provided by FactSet Research Systems Inc. (referred to as FactSet), the Companys compounded annual growth rate (referred to as CAGR) for TSR in comparison to a variety of public-company market indices
as of December 31, 2016 is as follows:
Our
3-year,
5-year
and
10-year
TSR and the
25-year
TSR of 20.8% in particular demonstrates the sustained level of performance of our Company over long periods of time. These results are also
important in assessing the Companys business strategy, quality of leadership, culture and the relative effectiveness of our compensation practices. Based on further analysis of data from FactSet, the Companys performance ranks as
follows:
|
|
|
|
|
Number of U.S. public companies with a market capitalization of greater than $2 billion at December 31,
2016
|
|
|
1,429
|
|
Number of these companies that exceed 10%
25-year
CAGR for total shareholder
return
|
|
|
358
|
|
Number of these companies that exceed 20%
25-year
CAGR for total shareholder
return
|
|
|
26
|
|
Watscos rank for total shareholder return out of the 1,429 companies studied
|
|
|
#20
|
|
Governance, Compensation Actions & Summary of Details
Compensation Governance Practices.
We believe that our executive compensation program promotes sound governance standards
and includes many shareholder-friendly features, such as:
|
|
|
Vast majority of pay is performance-based, consisting of restricted stock with
significantly
long cliff-vesting periods.
|
|
|
|
Prohibition on short sales and hedging of the Companys common stock.
|
|
|
|
No significant perquisites.
|
|
|
|
No severance agreements.
|
|
|
|
No employment agreements, other than with the Chairman & CEO.
|
|
|
|
Cap on the value of equity compensation that may be earned by the Chairman & CEO.
|
23
|
|
|
No defined benefit program or supplemental executive retirement plans.
|
|
|
|
No backdating or repricing of equity-based share awards.
|
|
|
|
Routine consultation with independent compensation advisors.
|
|
|
|
Annual independence assessment of advisors to the Compensation Committee.
|
|
|
|
Annual risk assessment by the Compensation Committee related to the Companys compensation policies.
|
Determination of Executive Compensation.
The Board delegates responsibility for determining the compensation structure of
our Chairman & CEO and our President to the Compensation Committee. For our other NEOs, our Chairman & CEO determines their compensation after review and consultation with the Compensation Committee. The Compensation Committee
currently consists of three independent directors appointed by the Board. In providing input regarding the other NEOs compensation, the Compensation Committee considers each NEOs responsibilities, the overall financial performance of the
Company, the performance of the department or function that such NEO leads and the collective success of the team meeting certain strategic priorities. The Compensation Committee has the opportunity to meet with the NEOs at various times during the
year, which allows the Compensation Committee to form its own assessment of each individuals performance.
Elements of Executive Compensation.
Our executive compensation is currently made up of three principal elements: base
salary, short-term incentive compensation paid in cash and long-term incentive compensation generally paid in restricted shares of Class B common stock, each of which is intended to be an important part of total executive compensation. As
described above, our core compensation philosophy focuses on long-term performance, which results in a relatively high proportion of compensation in the form of restricted shares.
Base Salary.
Base salary is designed to adequately compensate and reward the NEOs for their
day-to-day
performance. The Compensation Committee determines base salary for our Chairman & CEO and for our President. Our Chairman & CEO determines
base salaries for our other NEOs after review and consultation with the Compensation Committee. When setting and adjusting each NEOs salary level, the executives roles and responsibilities, experience, potential and performance are
considered. Other factors are considered such as the annual merit increase, if any, paid to all other Company employees, demand in the labor market for the particular executive and succession planning. These factors are not weighted. Adjustments to
base salary are discretionary and based on an overall assessment of all of these factors. Additionally, neither base salary nor any other element of executive compensation is benchmarked at any particular level versus a peer group or compensation
survey data. Instead, reasonable judgment is used to set a base salary that, when combined with all other compensation elements, results in a competitive pay package intended to align with the compensation philosophy of the Company, while retaining
high-performing executives.
For 2016, the NEOs accepted voluntary salary reductions in response to a broader Company-wide
strategy to reduce overall costs used to help set our business on the right path for future growth opportunities. Our Chairman and CEOs salary was reduced by 20% and the remaining NEOs salaries were reduced by 10%. Salaries paid to the
NEOs in 2016, including such adjustments, are shown in the Summary Compensation Table. These reductions were reinstated on January 1, 2017.
Annual Cash Incentives.
Annual cash incentives are discretionary and are used to reward NEOs for their current contributions to the Company, consistent with established annual goals and
strategic objectives of the Company. Our Chairman & CEO is not eligible for an annual cash incentive. Some of the factors the Compensation Committee considers include, but are not limited to, the overall financial performance of the
Company, the performance of the department or function that each executive leads and an assessment of the executive teams collective achievement of strategic priorities. For our President, the Compensation Committee determines specific
operational and technology-based objectives that must be achieved for an annual cash incentive to be earned.
24
For 2016, the CEO determined, and the Compensation Committee approved, a discretionary cash
incentive of $100,000 each for our CFO and SVP based on the factors set forth above. Also, the Compensation Committee independently determined and approved an annual cash incentive of $382,500 for our President based on the achievement of specified
performance criteria established at the beginning of 2016 including 1) improvement of inventory turns related to the Companys launch of new supply chain optimization software, 2) growth of sales in parts and supplies, 3) technology adoption
and usage across the Watsco enterprise and by its customers and 4) development of various merger and acquisition activities. The annual cash incentives paid to the NEOs during 2016 are shown in the 2016 Summary Compensation Table.
Long-Term Incentive Compensation.
Our long-term incentive compensation plan is administered through the 2014 Plan. As of
December 31, 2016, the 2014 Plan had approximately 200 participants, including the NEOs. Awards generally consist of:
(i) non-qualified
stock options that vest in installments over three and four
years from the date of grant and (ii) awards of restricted stock that vest upon retirement (age 62 or later). For the NEOs, as described above, our philosophy is heavily weighted toward awards of restricted stock, which create an owner-oriented
culture; therefore, the discretionary allocation between
non-qualified
stock options and restricted stock generally favors the latter. For 2016, we awarded no stock options to the NEOs.
In 2016, the Compensation Committee approved the discretionary award of 1,837 restricted shares of Class B common stock to each of
the NEOs (other than the Chairman & CEO) related to 2015 performance. These discretionary awards are reflected in the Summary Compensation Table.
Restricted stock awards are subject to forfeiture until certain specified events occur (generally, upon retirement at age 62 or later, death, long-term disability or a change in control of the Company).
Awards of restricted stock may be in either shares of Common stock or Class B common stock, none of which may be sold or disposed of prior to vesting, and which may be forfeited in the event of termination of employment prior to the end of the
restriction period. Generally, restricted shares of Class B common stock have been awarded, as the Board considers long-term continuity, stability and consistency of culture as important long-term contributors to the Companys future
success. The Company also believes other stakeholders, including its largest vendor partners, are comforted by and have made long-term commitments to the Company as a result of this long-term continuity, stability and consistency.
Shares of restricted stock include the right to vote and the right to receive dividends prior to vesting given the long-term vesting
provision.
The value of restricted shares is measured at the date of grant and is amortized ratably over the period from the date of grant through the date of cliff-vesting. The Company receives a tax deduction equal to the value of the
shares at the vesting date. If the underlying shares appreciate in value, the income tax benefits that accrue to the Company will be substantially higher than if the annual award amounts were paid in cash.
Restricted stock awards, while discretionary, are based upon the Companys performance, as described below. For our
Chairman & CEO and our President, the number of shares granted is based on the criteria and formula set forth below.
For our other NEOs, the Chairman & CEO considers and recommends discretionary share grants, which are subject to the review and
approval of the Compensation Committee. The decision to grant restricted stock awards to our other NEOs is based on the subjective weighting of the following criteria, together with the overall performance of the Company:
|
|
|
the individuals personal contribution toward Company performance and overall achievements;
|
|
|
|
current levels of equity held by such NEO in comparison to other NEOs;
|
|
|
|
the NEOs role and tenure with the Company;
|
|
|
|
the NEOs prospective retirement age (which is generally when vesting occurs); and
|
|
|
|
the compensation cost of the awards to the Company.
|
25
A summary of restricted stock awards held by our NEOs, including the range of years such
shares were granted, the range of cliff-vesting dates, and the weighted-average years remaining until the cliff-vesting date is reached is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Common
Shares
|
|
|
Class B
Common
Shares
|
|
|
Range of Years for
Grants of Restricted
Stock Awards(1)
|
|
Range of Dates for
Cliff-Vesting of Restricted
Stock Awards(2)
|
|
Weighted average
Years Remaining
Until Cliff-Vest Date
|
Albert H. Nahmad
|
|
|
|
|
|
|
2,104,329
|
|
|
1997 through 2016
|
|
October 2022 and 2026
|
|
7.1 years
|
Aaron J. Nahmad
|
|
|
|
|
|
|
52,537
|
|
|
2011 through 2016
|
|
October 2043 and 2045
|
|
27.3 years
|
Barry S. Logan
|
|
|
108,750
|
|
|
|
105,037
|
|
|
1997 through 2016
|
|
December 2024 and 2026
|
|
8.3 years
|
Ana M. Menendez
|
|
|
40,000
|
|
|
|
37,037
|
|
|
1999 through 2016
|
|
December 2026 and 2028
|
|
10.7 years
|
(1)
|
The Company has granted restricted awards to our NEOs over the years summarized above in a manner described in the CD&A, none of which have vested due to the
long-term duration of cliff-vest dates.
|
(2)
|
The scheduled vesting dates for the restricted shares generally represent our NEOs anticipated retirement age (age 62 or older).
|
Compensation of Our Chairman & CEO.
Albert H. Nahmad has served as our Chairman & CEO since December
1972. His vision and entrepreneurship have been instrumental in our growth and success over the past 44 years, and his leadership continues to be of great importance to our future performance.
The Chairman & CEOs compensation is composed of two components: (i) base salary and (ii) a long-term incentive
award of restricted shares. From 2011 to 2015, his annual base salary was $1,100,000. Beginning in January 2016, in connection with the appointment of A.J. Nahmad as President and the
re-assignment
of certain
day-today
responsibilities, our Chairman & CEOs base salary was reduced from $1,100,000 to $825,000. In 2016, Mr. Nahmad agreed to a further 20% voluntary reduction in salary to $660,000 in
response to a broader-based cost reduction effort by the Company.
The design of our Chairman & CEOs long-term
incentive compensation plan is simple and has remained virtually unchanged since it was originally developed in 1997. His incentive compensation award is based on the performance of two fundamental metrics: (i) annual growth of earnings per
share (referred to as EPS) and (ii) the year-over-year increase in Watscos stock price. If either increases, then he earns a restricted stock award. If neither increases, then he is not entitled to a restricted stock award in that year.
As a result, no restricted stock awards were received by our Chairman & CEO in 2007 or 2008 due to EPS and stock price performance at that time. EPS growth recognizes the importance of a proportional return on investment earned by
shareholders and is defined as diluted EPS calculated in accordance with U.S. generally accepted accounting principles, referred to as GAAP. We do not consider any
non-GAAP
adjustments to EPS.
Common stock price appreciation is also a fundamental method of measuring value creation on a
year-to-year
basis, and reflects not only performance, but other
assessments made by shareholders related to the quality and nature of the enterprise.
To be eligible to receive a long-term
incentive award, our Chairman & CEO must be employed for the entire year unless the Compensation Committee specifically determines otherwise. The Compensation Committee determines the performance criteria each year within the first 90 days
of the calendar year and formalizes such criteria as an amendment to the Chairman & CEOs employment agreement (such agreement and amendments are referred to as the Employment Agreement), which was filed with the SEC as Exhibit 10.1 to
the Quarterly Report on Form
10-Q
for the quarter ended March 31, 2016 and incorporated herein by reference.
The design of our Chairman & CEOs 2016 long-term incentive program was as follows:
EPS growth
$91,350 in value is awarded for each one cent of growth in the
Companys EPS over the prior year,
plus
26
Common stock price growth
(i) Zero in value if the NYSE quoted price of Watscos Common stock did not exceed $117.13* on December 31, 2016, or
(ii) $1,680 in value awarded for each one cent of increase in the NYSE quoted price of Watscos Common stock over the prior year (if
less than $140.56#), or
(iii) $2,520 in value is awarded for each one cent of increase in the NYSE quoted price of
Watscos Common stock over the prior year (if greater than $140.56#)
*
|
represents the closing price of Watscos Common stock at December 31, 2015.
|
#
|
represents a 20% increase in the closing price of Watscos Common stock versus December 31, 2015.
|
The Employment Agreement sets forth that long-term incentives, if any, will be awarded in the form of restricted Class B common
shares. The maximum amount of long-term incentive that our Chairman & CEO could be awarded in 2016 was limited to $20 million. Although such awards are presented in the Summary Compensation Table at grant date fair value, due to the
unusually long vesting periods and associated market and forfeiture risks,
the present value of such awards is likely significantly less
. Independent valuations obtained by the Company suggest that the present value of such awards is at least
25% less and may be as much as 50% less than the grant date fair value.
During 2016, Watscos annual EPS increased from
$4.90 per share in 2015 to $5.15 per share in 2016, and the price of its Common stock increased from $117.13 to $148.12, as of December 30, 2016. Based on the performance criteria factors set forth above, the calculated gross value of the 2016
long-term incentive award earned by our Chairman & CEO was $10.1 million (67,853 restricted Class B Common shares). Such restricted shares are scheduled to cliff-vest on October 15, 2026 and are subject to forfeiture prior to
this date as set forth in the restricted stock agreements. The issuance of such restricted shares increased his combined voting control from 52.5% to 53.1%. Mr. Nahmad also received $96.25 in lieu of fractional shares.
Compensation of Our President.
On January 15, 2016, A.J. Nahmad was promoted to the position of President.
Under his direction and leadership, Watsco began in 2012 to actively increase its investment in a number of scalable technologies as a means of further strengthening its leadership position in the HVAC/R marketplace. His promotion to President
acknowledged his leadership and recognized the importance of the successful execution and adoption of these technological innovations across the Watsco enterprise. His promotion is also considered an important event for the Company in terms of
management succession with the goal of achieving long-term, generational continuity and consistency of Watscos unique culture.
To formulate our Presidents compensation program, the Compensation Committee engaged Pearl Meyer & Partners, LLC (referred to as Pearl Meyer), an independent compensation consulting firm,
to provide advice, relevant market data and best practices with respect to our Presidents compensation. The Compensation Committee assessed the independence of Pearl Meyer against the specific criteria under applicable SEC and NYSE rules,
received a letter from Pearl Meyer confirming their independence and determined that no conflict of interest is raised by Pearl Meyers work for the Compensation Committee.
Our Presidents 2016 program included: (i) a base salary of $550,000; (ii) eligibility for an annual cash incentive of up to
$450,000 contingent upon achieving specified operational and technology-related objectives, of which $382,500 was earned; and (iii) eligibility for an equity award contingent upon the attainment of specified performance criteria. The
equity-based award, if any, is split into two components: (a) 75% of the amount of the award to be issued immediately as Class B restricted stock with cliff vesting at age 62 or later; and (b) 25% of the amount of the award to be issued as
restricted stock units (RSUs) that are potentially convertible into shares of Class B restricted stock contingent upon the Companys stock price performance measured at the end of a three-year period.
27
For 2016, the Presidents equity-based incentive was as follows:
EPS growth
$39,150 in value is awarded for each one cent of growth in the Companys EPS from the prior year,
plus
Common stock price growth
(i) Zero in value if the NYSE quoted price of
Watscos Common stock did not exceed $109.85* on December 31, 2016, or
(ii) $720 in value is awarded for each one
cent of increase in the NYSE quoted price of Watscos Common stock from the prior year (if less than $131.82#), or
(iii)
$1,080 in value is awarded for each one cent of increase in the NYSE quoted price of Watscos Common stock from the prior year (if greater than $131.82#)
*
|
represents the closing price of Watscos Common stock at January 15, 2016.
|
#
|
represents a 20% increase in the closing price of Watscos Common stock versus January 15, 2016.
|
Based on these criteria and actual 2016 performance, our Presidents equity-based award for 2016 consisted of: (i) 25,774 shares of
restricted Class B common shares that are scheduled to cliff-vest on October 17, 2043 his estimated retirement date, and (ii) RSUs valued at $1,277,977 that may result in the issuance on December 31, 2019 (the measurement
date) in Class B restricted shares dependent upon the three-year average annual performance of Watscos share price as follows:
|
|
|
Average Annual Three-Year
Increase in Watscos Share
Price (2017 through
2019)
|
|
RSU
Conversion
Factor
|
0%
|
|
0%
|
10%
|
|
100%
|
20% (maximum)
|
|
200%
|
The Compensation Committee has discretion to determine the RSU conversion factor based on achieved growth
rates between the thresholds of 0% to 10% and 10% to 20%. Restricted shares of Class B common stock, if any, issued pursuant to this award will cliff-vest on October 17, 2043, and are subject to the terms, conditions and risks of
forfeiture contained in the related restricted stock agreements. Although restricted shares granted in 2016 are presented in the Summary Compensation Table at grant date fair value, due to the unusually long vesting periods and associated market and
forfeiture risks, the present value of such awards is likely significantly less.
Benefits Programs.
Our NEOs
are eligible to participate in our health and welfare plans (medical, dental, vision, life and other insurance), a 401(k) plan, employee stock purchase plan and other programs that are generally available to all employees.
Company Airplane.
Pursuant to his employment agreement, our Chairman & CEO has limited access to our corporate
aircraft for personal use (up to 50 hours during 2016), and the value of such use is included in his annual compensation. We review the aircraft flight logs and categorize the flights as business-related or
non-business-related
to determine our Chairman & CEOs personal use of the aircraft. The value of the personal use of the Company aircraft reported as compensation to our Chairman & CEO
is determined following the Internal Revenue Service guidelines, which may be different than the Companys aggregate incremental cost of such use.
Pension Plans.
We do not provide a defined benefit pension plan or supplemental executive retirement plan.
Employment Agreements.
There are no employment agreements with our NEOs, except for our Chairman & CEOs Employment Agreement.
28
Severance Plan.
We do not have severance agreements with any of our NEOs
except for the established termination provisions set forth in our Chairman & CEOs Employment Agreement.
Clawback Policy.
The Company maintains a clawback policy whereby the Company has the ability to require that NEOs reimburse
the Company for all or any portion of any incentive or equity-based compensation in the event of a material restatement of the Companys financial statements or if the NEOs engaged in fraud or criminal misconduct related to the Company or its
business.
Stock Option Backdating & Repricing.
We do not and have not backdated or repriced
stock option awards.
Hedging of Shares.
We do not permit and have not permitted short sales or
transactions using derivatives of Watsco shares, including hedging transactions.
Certain Tax Considerations.
Under Section 162(m) of the Internal Revenue Code (referred to as Section 162(m)), public companies may generally not take a tax deduction for
non-performance
compensation in excess of $1.0 million paid
to certain executive officers, including the Chairman & CEO or any of the next three most highly compensated officers other than the CFO. If compensation qualifies as performance-based under Section 162(m), it does not count
against the $1.0 million deduction limit. Our policy with respect to Section 162(m) is to make reasonable efforts to ensure that compensation is deductible without limiting our ability to attract and retain qualified executives. The
Compensation Committee has not adopted a policy that all compensation must be deductible, believing in the importance of retaining flexibility to design compensation programs that recognize a full range of criteria important to our success, even
where compensation payable under the programs may not be fully deductible. Our Compensation Committee intends to monitor compensation levels and the deduction limitation.
Risk Considerations in our Compensation Programs.
We have reviewed our compensation structures and policies as they pertain to risk and have determined that our compensation programs do not
create or encourage the taking of risks that are reasonably likely to have a material adverse effect on the Company.
Compensation Committee
Interlocks and Insider Participation.
No member of the Compensation Committee during 2016 was an officer, employee or
former officer of ours or any of our subsidiaries or had any relationship that would be considered a compensation committee interlock and would require disclosure in this Proxy Statement pursuant to SEC rules and regulations. None of our named
executive officers served as a member of a compensation committee or a director of another entity under the circumstances requiring disclosure in this Proxy Statement pursuant to SEC rules and regulations.
29
COMPENSATION COMMITTEE REPORT
The following report of the Compensation Committee shall not be deemed to be soliciting material or to be
filed with the Securities and Exchange Commission nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the
extent that the Company specifically incorporates it by reference into a filing.
The Compensation Committee has reviewed
and discussed the CD&A contained in this Proxy Statement with management. Based on that review and discussion, the Compensation Committee has recommended to the Board of Directors that the CD&A be included in this Proxy Statement.
The following independent directors, who comprise the Compensation Committee, provide this report:
|
COMPENSATION COMMITTEE
|
|
Denise Dickins, Chair
|
Steven R. Fedrizzi
|
George P. Sape
|
30
COMPENSATION TABLES
2016 Summary Compensation Table
The following table sets forth the compensation earned by the NEOs for services rendered for the years ended December 31, 2016, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Restricted
Stock
Awards
($)(1)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)(2)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
Compensation
($)
|
|
Albert H. Nahmad (3)
Chief Executive Officer
|
|
|
2016
|
|
|
$
|
660,000
|
|
|
|
|
|
|
$
|
10,093,134
|
|
|
$
|
96
|
|
|
$
|
147,495
|
|
|
$
|
10,900,725
|
|
|
|
2015
|
|
|
$
|
1,077,096
|
|
|
|
|
|
|
$
|
7,000,022
|
|
|
$
|
118
|
|
|
$
|
134,309
|
|
|
$
|
8,211,545
|
|
|
|
2014
|
|
|
$
|
1,100,000
|
|
|
|
|
|
|
$
|
10,977,550
|
|
|
$
|
50
|
|
|
$
|
89,147
|
|
|
$
|
12,166,747
|
|
|
|
|
|
|
|
|
|
Aaron J. Nahmad (4)
President
|
|
|
2016
|
|
|
$
|
485,507
|
|
|
$
|
382,500
|
|
|
$
|
4,065,639
|
|
|
$
|
50
|
|
|
$
|
3,975
|
|
|
$
|
4,937,671
|
|
|
|
2015
|
|
|
$
|
259,740
|
|
|
|
|
|
|
$
|
1,250,000
|
|
|
|
|
|
|
$
|
3,975
|
|
|
$
|
1,513,715
|
|
|
|
2014
|
|
|
$
|
237,500
|
|
|
$
|
170,000
|
|
|
$
|
914,000
|
|
|
|
|
|
|
$
|
3,531
|
|
|
$
|
1,325,031
|
|
|
|
|
|
|
|
|
|
Barry S. Logan (4)
Senior Vice President
|
|
|
2016
|
|
|
$
|
391,500
|
|
|
$
|
100,000
|
|
|
$
|
231,756
|
|
|
|
|
|
|
$
|
3,975
|
|
|
$
|
727,231
|
|
|
|
2015
|
|
|
$
|
430,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,975
|
|
|
$
|
434,446
|
|
|
|
2014
|
|
|
$
|
435,000
|
|
|
$
|
170,000
|
|
|
|
|
|
|
|
|
|
|
$
|
3,852
|
|
|
$
|
608,852
|
|
|
|
|
|
|
|
|
|
Ana M. Menendez (4)
Chief Financial Officer
|
|
|
2016
|
|
|
$
|
315,000
|
|
|
$
|
100,000
|
|
|
$
|
231,756
|
|
|
|
|
|
|
$
|
3,975
|
|
|
$
|
650,731
|
|
|
|
2015
|
|
|
$
|
346,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,975
|
|
|
$
|
350,331
|
|
|
|
2014
|
|
|
$
|
350,000
|
|
|
$
|
170,000
|
|
|
|
|
|
|
|
|
|
|
$
|
3,852
|
|
|
$
|
523,852
|
|
(1)
|
The amounts in this column represent the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718. Compensation expense related to
restricted stock awards is recognized over the relevant vesting period for each NEO. The annual expense for the 2016 restricted stock awards to be included in the Companys annual financial results is approximately $937,000 for Albert H.
Nahmads restricted stock award (vesting date is October 15, 2026), $146,000 for Aaron J. Nahmads restricted stock awards (vesting date is October 17, 2043) $21,000 for Barry Logans restricted stock award (vesting date is
December 14, 2026) and $18,000 for Ana Menendezs restricted stock award (vesting date is December 2, 2028). Although such awards are presented in the Summary Compensation Table at todays value, due to the unusually long vesting
periods and associated risks of forfeiture, the present value of such awards is likely significantly less. Independent valuations obtained by the Company suggest that the present value of such awards is at least 20% less, and may be as great as 50%
less
.
For additional information regarding assumptions underlying the valuation of equity awards and the calculation method, please refer to Note 8 to our consolidated financial statements, which are contained in our Annual Report
to Shareholders, filed with the SEC as Exhibit 13 to our 2016 Annual Report on Form
10-K.
|
(2)
|
Represents the cash value of fractional shares earned in connection with an annual incentive award.
|
(3)
|
For Albert H. Nahmad, all other compensation in 2016 included (i) $3,975 related to the 401(k) Plan matching contribution; (ii) $27,568 related to
additional health insurance benefits paid by the Company for Mr. Nahmad and his spouse, such as deductibles and
co-insurance,
among others and (iii) $115,952 related to Mr. Nahmads use of our
aircraft for personal travel pursuant to his Employment Agreement.
|
(4)
|
For Aaron J. Nahmad, Mr. Logan and Ms. Menendez, all other compensation comprises 401(k) Plan matching contributions.
|
31
Comparison of CEO Compensation to Total Shareholder Return.
The following
chart represents the comparison for the last five calendar years of (i) our Chairman & CEOs total compensation as summarized in the Summary Compensation Table, (ii) compensation actually paid (consisting of his base salary)
and (iii) total shareholder return for each of the last five calendar years. Actual realized compensation in the last five years is substantially lower while the Company continues to outperform on TSR.
32
2016 Grants of Plan-Based Restricted Stock Awards
This table discloses the number of restricted stock awards granted to our NEOs during 2016 and the grant date fair value of these awards.
No stock options were granted to our NEOs during 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
Under
Non-Equity
Incentive Plan Awards
|
|
|
Estimated Future Payouts
Under Equity
Incentive Plan Awards
|
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock
or
Units
(#)
|
|
|
Grant Date
Fair Value
of Stock
and
Option
Awards
($)(3)
|
|
Name
|
|
Grant
Date
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
Threshold
(#)
|
|
|
Target
(#)
|
|
|
Maximum
(#)(4)
|
|
|
|
Albert H. Nahmad
|
|
|
12/31/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,853
|
(1)
|
|
$
|
10,093,134
|
|
Aaron J. Nahmad
|
|
|
03/01/16
12/31/16
12/31/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
17,182
|
(4)
|
|
|
1,837
25,774
|
(2)
(1)
|
|
$
$
|
231,756
3,833,883
|
|
Barry S. Logan
|
|
|
03/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,837
|
(2)
|
|
$
|
231,756
|
|
Ana M. Menendez
|
|
|
03/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,837
|
(2)
|
|
$
|
231,756
|
|
(1)
|
Represents the 2016 long-term incentive award for our Chairman & CEO and our President. For further information, see the discussion in the CD&A above.
|
(2)
|
Represents the discretionary issuance of restricted shares of Class B common stock to each of the NEOs (other than the Chairman & CEO) based on 2015
performance.
|
(3)
|
The grant date fair value of the restricted stock awards represents the total amount of share-based compensation expense that will be recognized over the vesting
period, which extends to October 15, 2026 for Albert H. Nahmad, October 17, 2043 for Aaron J. Nahmad, December 14, 2026 for Barry S. Logan and to December 2, 2028 for Ana M. Menendez. Annual expense to be included in the
Companys financial results in prospective years is approximately $937,000 for Albert H. Nahmads restricted stock award, $146,000 for Aaron J. Nahmads restricted stock awards, $21,000 for Barry S. Logans restricted stock award
and $18,000 for Ana M. Menendezs restricted stock award. Although such awards are presented in the above table at todays value, due to the unusually long vesting periods and associated risks of forfeiture, the present value of such
awards is likely significantly less. Independent valuations obtained by the Company suggest that the present value of such awards is at least 25% less, and may be as great as 50% less.
|
(4)
|
Represents 25% of our Presidents 2016 equity-based incentive award that may be issued on December 31, 2019 in Class B restricted shares dependent upon
the Companys stock price performance measured at the end of a three-year period.
|
33
Outstanding Equity Awards at December 31, 2016
The following table summarizes stock awards outstanding at December 31, 2016 for the NEOs. All such awards represent restricted
stock. There were no stock option awards outstanding for the NEOs at December 31, 2016.
|
|
|
|
|
|
|
|
|
Name
|
|
Restricted Stock Awards
|
|
|
Number
of
Shares or Units
of Stock That
Have Not
Vested
(#)
|
|
|
Market
Value of
Shares or Units
of Stock That
Have
Not
Vested
($)(1)
|
|
Albert H. Nahmad
|
|
|
2,104,329
|
|
|
$
|
313,018,939
|
|
Aaron J. Nahmad
|
|
|
52,537
|
|
|
$
|
7,814,879
|
|
Barry S. Logan
|
|
|
213,787
|
|
|
$
|
31,732,304
|
|
Ana M. Menendez
|
|
|
77,037
|
|
|
$
|
11,434,054
|
|
(1)
|
The market value is based on the respective closing market prices of our Common stock and Class B common stock on December 30, 2016, as reported by the NYSE.
Shares vest upon dates specified in the restricted stock agreements or upon death, disability or upon a change in control of the Company.
|
34
Potential Payments upon Termination or Change of Control
Agreements for awards of restricted stock have provisions that provide for accelerated vesting due to a change in control of the Company,
or upon the death or disability of the executive. In the event that vesting is accelerated under these agreements, any unrecognized share-based compensation expense would be immediately recognized. There are no other agreements or arrangements with
our NEOs that provide for compensation or other benefits upon a change in control of the Company.
The table below illustrates
the value of the accelerated vesting of the equity awards for each NEO had Watsco experienced a change in control on December 31, 2016 along with the amount of unrecognized share-based compensation that would be recognized. The amounts
presented in the table below are estimates and do not necessarily reflect the actual value of the benefits that would be received by the NEOs, which would only be known at the time that a change of control occurs.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Stock Options
|
|
|
Restricted
Stock(1)
|
|
|
Unrecognized
Share-Based
Compensation(2)
|
|
Albert H. Nahmad
|
|
|
|
|
|
$
|
323,112,073
|
|
|
$
|
59,005,683
|
|
Aaron J. Nahmad
|
|
|
|
|
|
$
|
11,648,761
|
|
|
$
|
8,052,537
|
|
Barry S. Logan
|
|
|
|
|
|
$
|
28,769,904
|
|
|
$
|
2,188,881
|
|
Ana M. Menendez
|
|
|
|
|
|
$
|
7,731,054
|
|
|
$
|
1,635,744
|
|
(1)
|
This value is based on the closing prices on the NYSE for a share of our Common stock and Class B common stock on December 30, 2016, multiplied by the number
of restricted shares of Common stock or Class B common stock, as applicable that would have been subject to accelerated vesting. The amount realized would be taxable compensation to the NEO and, subject to the provisions of Section 162(m),
would result in significant tax benefits for the Company.
|
(2)
|
Represents the amount of share-based compensation expense that would be immediately recognized in the event of accelerated vesting.
|
35
PROPOSAL NO. 1ELECTION OF DIRECTORS
The Nominating & Governance Committee recommended, and the Board of Directors nominated the following persons as nominees for
election as members of our Board of Directors at the 2017 annual meeting of shareholders. Denise Dickins is an incumbent director.
|
|
|
Name
|
|
Term Expiring
|
Common stock
|
|
|
Jason Epstein
|
|
2020 annual meeting of shareholders
|
|
|
Class B common stock
|
|
|
Cesar L. Alvarez
|
|
2020 annual meeting of shareholders
|
Denise Dickins
|
|
2020 annual meeting of shareholders
|
The section titled Directors & Executive Officers on pages 5 and 6 of this Proxy
Statement contains more information about the leadership skills and other experience that caused the Nominating & Governance Committee and the Board of Directors to determine that these nominees should serve as directors of the Company.
We believe that each of these directors possesses the experience, skills and qualities to fully perform his or her duties as
a director and contribute to our success. Our directors have been nominated because they possess the highest standards of personal integrity, interpersonal and communication skills, are highly accomplished in their fields, have an understanding of
the interests and issues that are important to our shareholders and are able to dedicate sufficient time to fulfilling their obligations as directors. Our directors as a group complement each other and their respective experiences, skills and
qualities. While our directors make up a diverse group in terms of age, gender, ethnic background and professional experience, they together comprise a cohesive body in terms of Board process and collaboration.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE DIRECTOR NOMINEES.
36
PROPOSAL NO.
2NON-BINDING
ADVISORY RESOLUTION REGARDING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
As required by Section 14A of the Exchange Act, the Board requests your
non-binding
advisory vote to approve the compensation of our named executive officers as
described in this Proxy Statement under the heading Compensation Discussion and Analysis including the tables that follow. Your vote is solely advisory and, therefore, will not be binding on the Company; however, the Board will review
the voting results and take them into consideration when making future executive compensation decisions.
The Board encourages
shareholders to read the Compensation Discussion and Analysis, including the tables that follow, to review the correlation between compensation and performance.
The Board remains committed to sound corporate governance practices and shares the interest of shareholders in maintaining effective executive compensation. The Board believes that our executive
compensation, which is focused on the Companys long-term value, has a proven record of effectively driving the Companys performance as a result of the continued leadership of these named executive officers and believes that it will
assist us in retaining our senior leadership team.
We are asking shareholders to vote on the following advisory resolution:
RESOLVED
, that the compensation paid to Watscos named executive officers, as disclosed pursuant to
Item 402 of Regulation
S-K,
including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOREGOING RESOLUTION TO APPROVE ON A
NON-BINDING
ADVISORY BASIS THE COMPENSATION OF THE COMPANYS NAMED EXECUTIVE OFFICERS.
37
PROPOSAL NO.
3NON-BINDING
ADVISORY RESOLUTION ON THE FREQUENCY OF THE NON-BINDING ADVISORY RESOLUTION REGARDING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
As required by Section 14A of the Exchange Act, the Board requests your
non-binding
advisory
vote on whether a periodic vote to approve the compensation of our named executive officers should occur once every year, two years or three years. This vote is advisory and, therefore, will not be binding on the Board or the Company. The Board
will, however, take the voting results into consideration when making a determination as to the frequency of the periodic advisory vote.
The Board believes an annual advisory vote on executive compensation is appropriate given our long-term compensation philosophy, which emphasizes long-term shareholder value, and compensation practices
which rely largely on awards of long-term cliff vesting restricted stock. It also enables our shareholders the opportunity to easily evaluate the operation of our executive compensation programs.
Vote Required. Shareholders are being asked to vote on the following resolution:
RESOLVED
, that the Companys shareholders advise the Company to include a
non-binding,
advisory vote on the compensation of the Companys named executive officers pursuant to Section 14A of the Exchange Act every:
In voting on this resolution, you should mark your proxy for one year, two years or three years based on your preference as to the frequency with which an advisory vote on executive compensation should be
held. If you have no preference, you should abstain. If no voting specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote FOR a frequency of ONE YEAR for future advisory votes regarding
executive compensation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR A FREQUENCY OF ONE YEAR WITH
RESPECT TO THE FOREGOING RESOLUTION.
38
PROPOSAL NO. 4RATIFICATION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Our Audit Committee selected and appointed KPMG as our independent registered public accounting
firm for the 2017 fiscal year. KPMG has served as Watscos independent registered accounting firm since 2009. In selecting KPMG as the Companys independent registered accounting firm for 2017, the Audit Committee considered a number of
factors, including:
|
|
|
the professional qualifications of KPMG, the lead audit partner, and other key engagement personnel.
|
|
|
|
KPMGs independence and its processes for maintaining its independence.
|
|
|
|
KPMGs depth of understanding of Watscos business, accounting policies and practices, and internal control over financial reporting.
|
|
|
|
the appropriateness of KPMGs fees for audit and
non-audit
services.
|
|
|
|
the results of KPMGs most recent PCAOB inspection report.
|
|
|
|
the results of managements and the Audit Committees annual evaluations of the qualifications, performance and independence of KPMG.
|
Although ratification is not required by our
By-Laws
or otherwise,
the Board of Directors is submitting the appointment of KPMG to our shareholders for ratification. The Audit Committee will consider the outcome of this vote in future deliberations regarding the appointment of our independent registered public
accounting firm; however, the Audit Committee is solely responsible for the appointment and termination of our auditors and may do so at its discretion.
A representative from KPMG is expected to attend the 2017 annual meeting of shareholders and will have the opportunity to make a statement, if he or she desires to do so, and answer questions, if any.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF KPMG AS OUR INDEPENDENT
REGISTERED PUBLIC ACCONTING FIRM FOR THE 2017 FISCAL YEAR.
Fees and Services of Independent Registered Public Accounting Firm
The table below summarizes the fees and expenses billed to us by KPMG for the years ended December 31, 2016 and 2015.
There were no audit-related fees or other fees billed to us by KPMG for the years ended December 31, 2016 and 2015, therefore, the columns for such fees were excluded from the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Audit Services
|
|
|
Audit-Related Services
|
|
|
Tax Services
|
|
|
Other Non-Audit
Services
|
|
|
Total
|
|
2016
|
|
$
|
1,825,000
|
|
|
|
|
|
|
$
|
148,000
|
|
|
|
|
|
|
$
|
1,973,000
|
|
2015
|
|
$
|
1,722,000
|
|
|
|
|
|
|
$
|
244,000
|
|
|
|
|
|
|
$
|
1,966,000
|
|
Policy for Approval of Audit and Permitted
Non-Audit
Services
The Audit Committee is responsible for appointing, terminating, compensating, retaining, evaluating, and overseeing the work of the
independent registered public accounting firm. Our independent registered public accounting firm reports directly to the Audit Committee. As part of its responsibility, the Audit Committee has established a policy requiring the
pre-approval
of all audit and permissible
non-audit
services performed by our independent registered public accounting firm. In
pre-approving
services, the Audit Committee considers whether such services are consistent with the SECs rules on auditor independence or if such services would in any way negatively impact the quality
of the audit conducted.
39
Prior to the annual engagement of the independent registered public accounting firm for an
upcoming
audit/non-audit
service period, defined as a twelve-month period, KPMG submits a detailed list of services expected to be rendered during that period as well as an estimate of the associated fees for
each of the following four categories of services to the Audit Committee for approval:
Audit Services.
Audit services consist of services rendered by an independent registered public accounting firm for the audit of our consolidated financial statements (including tax services performed to fulfill the auditors responsibility under generally
accepted auditing standards) and our internal control over financial reporting, reviews of the interim financial statements included in Forms
10-Q
and includes services that generally only an external auditor
can reasonably provide, such as comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC.
Audit-Related Services.
Audit-related services consist of assurance and related services (e.g., due diligence) by an external auditor that are reasonably related to the audit or
review of financial statements, including employee benefit plan audits, due diligence related to mergers and acquisitions, accounting consultations and audits in connection with proposed or consummated acquisitions, internal control reviews, attest
services related to financial reporting that are not required by statute or regulation, and consultation concerning financial accounting and reporting standards. There were no audit-related services provided by KPMG in 2016 or 2015.
Tax Services.
Tax services consist of services rendered by an external auditor for tax compliance, tax consulting and tax
planning.
Other
Non-Audit
Services.
Other
non-audit
services are any other permissible work that is not an Audit, Audit-Related or Tax Service. There were no other
non-audit
services provided by KPMG in 2016 or 2015.
Circumstances may arise when it may become necessary to engage the independent registered public accounting firm for
additional services or additional effort not contemplated in the original
pre-approval.
In those instances, the Audit Committee requires specific
pre-approval
before
engaging the independent registered public accounting firm.
40
AUDIT COMMITTEE REPORT
The following report of the Audit Committee does not constitute soliciting material and should not be deemed filed with the SEC nor
shall this information be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into a
filing.
Our Audit Committee consists of Chair, Denise Dickins, and members, David Darnell and George Sape. The Board has
determined that each Audit Committee member is independent, as independence for audit committee members is defined in the applicable NYSE listing standards and rules of the SEC. The Board also determined that all members of the Audit
Committee are financially literate and have accounting or related financial management expertise, and each has been designated as an audit committee financial expert, as defined by NYSE listing standards and SEC rules. Although designated as audit
committee financial experts, the Audit Committee Chair and members are not accountants for the Company nor, under SEC rules, an expert for purposes of the liability provisions of the Securities Act or for any other purpose.
The role of the Audit Committee is to (a) assist the Board in its oversight responsibilities relating to (i) the preparation,
presentation and integrity of the Companys financial statements and internal control over financial reporting, (ii) the independent auditors qualifications and independence, (iii) the performance of the Companys internal
audit function and independent auditors and (iv) the Companys compliance with legal and regulatory requirements; and (b) prepare the Committees report required by the SEC to be included in the Companys annual proxy
statement.
The Audit Committee influences the overall tone for quality financial reporting, sound internal controls, and
ethical behavior. Management is responsible for the preparation, presentation and integrity of the Companys financial statements, for the appropriateness of the accounting and reporting policies that are used by the Company, and for the
establishment and effectiveness of internal controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations. The independent auditors are responsible for auditing the Companys consolidated
financial statements in accordance with the standards of the Public Company Accounting Oversight Board, expressing an opinion as to the conformity of such financial statements with generally accepted accounting principles, expressing an opinion on
the effectiveness of internal control over financial reporting, and for reviewing the Companys interim consolidated financial statements.
The independent auditors report directly to the Audit Committee. The Audit Committee has the sole authority and responsibility to recommend to the Board the nomination of the independent auditors for
approval by the shareholders on an annual basis. The Audit Committee is directly responsible for the appointment, termination, compensation, retention, evaluation and oversight of the work of the independent auditors for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services for the Company.
In 2016, the Audit Committee
formally met and held discussions with management, the Companys VP of Internal Audit and Compliance, and KPMG, the Companys independent registered public accounting firm, six times. In addition, members of the Audit Committee had
numerous informal conversations with the Companys financial management, internal auditors, and independent auditors. The Audit Committee discussed the Companys audited consolidated financial statements, interim financial statements,
system of internal control over financial reporting, and policies and procedures designed to reduce the likelihood of events of
non-compliance
with rules and regulations with management, internal auditors, and
KPMG, including discussions of the quality, not just the acceptability, of accounting policies and principles, significant judgments and estimates, system of internal control over financial reporting, and clarity of disclosures. The Audit Committee
reviewed the annual plan and scope of work to be performed by internal audit and KPMG, and throughout the year, routinely met outside of the presence of management with both internal audit and KPMG to discuss their respective audit results,
evaluations of Watscos internal controls, and the overall quality of
41
Watscos financial reporting. Consistent with the requirements of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder, the Audit Committee discussed with KPMG those matters
required to be discussed pursuant to PCAOB Auditing Standard 1301, Communications with Audit Committees, and the rules of the SEC, and reviewed a letter from KPMG disclosing such matters.
The Audit Committee also discussed with KPMG the firms independence from the Company and its management team, and reviewed the
written disclosures and letter from KPMG pursuant to applicable requirements of the PCAOB regarding the independent registered public accounting firms communications with the Audit Committee concerning independence, and considered the
compatibility of
non-audit
services with KPMGs independence.
Based upon the
reports and discussions described above, the Audit Committee, in accordance with its responsibilities, recommended to the Board that the audited consolidated financial statements be included in the Companys Annual Report on Form
10-K
for the year ended December 31, 2016.
|
AUDIT COMMITTEE
|
|
Denise Dickins, Chair
David C.
Darnell
George P. Sape
|
42
OTHER BUSINESS
The Board knows of no other business to be brought before the annual meeting. If, however, any other business should properly come before
the annual meeting, the persons named in the accompanying Proxy Statement will vote proxies in their discretion as they may deem appropriate, unless they are directed by a proxy to do otherwise.
|
By order of the Board of Directors,
|
|
|
BARRY S. LOGAN
Senior Vice
President and Secretary
April 28, 2017
|
43
WATSCO, INC.
2665 South Bayshore Drive, Suite 901
Miami, Florida 33133
PROXY FOR COMMON STOCK
2017 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints ALBERT H. NAHMAD and BARRY S. LOGAN and each of them, as proxies and true and lawful attorneys
and agents for and in the name of the undersigned, with full power of substitution for and in the name of the undersigned, to vote all shares of Common stock, par value $0.50, of WATSCO, INC., a Florida corporation (the Company), in the
manner set forth below. The undersigned is entitled to vote at the 2017 Annual Meeting of Shareholders of the Company to be held at the Washington Duke Inn, 3001 Cameron Boulevard, Durham, NC 27705 on Monday, June 5, 2017, at 9:00 a.m. EDT, and
at any and all adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 4 SET FORTH BELOW AND A
VOTE FOR ONE YEAR FOR PROPOSAL 3.
The undersigned hereby instructs said proxies or their substitutes:
|
(1)
|
FOR ALL [ ] WITHHOLD ALL [ ] FOR ALL EXCEPT [ ] To elect Jason Epstein as a Common stock
director until the Annual Meeting of Shareholders in 2020, or until his successor is duly elected and qualified, except for the following nominee(s)
(if any).
|
|
(2)
|
FOR [ ] AGAINST [ ] ABSTAIN [ ] Approval of a
non-binding
advisory resolution regarding the compensation of our named executive officers.
|
|
(3)
|
THREE YEARS [ ] TWO YEARS [ ] ONE YEAR [ ] ABSTAIN [ ]
Non-binding
advisory resolution on the frequency of the
non-binding
advisory resolution regarding the compensation of our named executive officers.
|
|
(4)
|
FOR [ ] AGAINST [ ] ABSTAIN [ ] To ratify the appointment of KPMG LLP as our independent
registered public accounting firm for the 2017 fiscal year.
|
NOTE: In the proxies discretion, the proxies are authorized
to vote on any other matters, which may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof.
(SEE REVERSE SIDE)
(CONTINUED FROM OTHER SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE BOARDS
RECOMMENDATIONS.
The undersigned hereby acknowledges receipt of (i) the Companys 2016 Annual Report to Shareholders,
(ii) the Proxy Statement and (iii) the Notice of Annual Meeting dated April 28, 2017.
|
|
|
|
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|
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|
|
|
|
|
|
Date:
|
|
|
|
, 2017
|
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|
|
|
|
|
|
|
|
|
|
|
[SIGNATURE OF SHAREHOLDER]
|
|
|
|
|
|
|
|
|
|
|
|
|
[SIGNATURE OF JOINT HOLDER]
|
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|
|
|
|
|
|
|
|
|
Please sign exactly as your name or names appear on this proxy. When shares are held jointly, each holder should sign. When signing as an executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by
authorized person.
|
WATSCO, INC.
2665 South Bayshore Drive, Suite 901
Miami, Florida 33133
PROXY FOR CLASS B COMMON STOCK
2017 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints ALBERT H. NAHMAD and BARRY S. LOGAN and each of them, as proxies and true and lawful attorneys
and agents for and in the name of the undersigned, with full power of substitution for and in the name of the undersigned, to vote all shares of Class B common stock, par value $0.50, of WATSCO, INC., a Florida corporation (the
Company), in the manner set forth below. The undersigned is entitled to vote at the 2017 Annual Meeting of Shareholders of the Company to be held at the Washington Duke Inn, 3001 Cameron Boulevard, Durham, NC 27705 on Monday,
June 5, 2017, at 9:00 a.m. EDT, and at any and all adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSALS 1, 2 AND 4 SET FORTH BELOW AND A VOTE FOR ONE YEAR FOR PROPOSAL 3.
The undersigned hereby instructs
said proxies or their substitutes:
|
(1)
|
FOR ALL [ ] WITHHOLD ALL [ ] FOR ALL EXCEPT [ ] To elect Cesar L. Alvarez and Denise Dickins as
Class B common stock directors until the Annual Meeting of Shareholders in 2020, or until their respective successors are duly elected and qualified, except for the following nominee(s)
(if any).
|
|
(2)
|
FOR [ ] AGAINST [ ] ABSTAIN [ ] Approval of a
non-binding
advisory resolution regarding the compensation of our named executive officers.
|
|
(3)
|
THREE YEARS [ ] TWO YEARS [ ] ONE YEAR [ ] ABSTAIN [ ]
Non-binding
advisory resolution on the frequency of the
non-binding
advisory resolution regarding the compensation of our named executive officers.
|
|
(4)
|
FOR [ ] AGAINST [ ] ABSTAIN [ ] To ratify the appointment of KPMG LLP as our independent
registered public accounting firm for the 2017 fiscal year.
|
NOTE: In the proxies discretion, the proxies are authorized
to vote on any other matters that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof.
(SEE REVERSE SIDE)
(CONTINUED FROM OTHER SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE BOARDS
RECOMMENDATIONS.
The undersigned hereby acknowledges receipt of (i) the Companys 2016 Annual Report to Shareholders,
(ii) the Proxy Statement and (iii) the Notice of Annual Meeting dated April 28, 2017.
|
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|
Date:
|
|
|
|
, 2017
|
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|
|
|
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|
|
|
|
|
|
[SIGNATURE OF SHAREHOLDER]
|
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|
|
|
|
|
|
|
|
|
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[SIGNATURE OF JOINT HOLDER]
|
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|
|
|
|
|
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|
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|
Please sign exactly as your name or names appear on this proxy. When shares are held jointly, each holder should sign. When signing as an executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by
authorized person.
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