Revolutionizing the HVAC/R Marketplaceg / p

February 2009

Safe Harbour StatementThis presentation contains or incorporates by reference statements that are not historical in nature and that are intended to be, and are hereby identified as, “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding among other items (i) b siness and acq isition strategies (ii)statements regarding, among other items, (i) business and acquisition strategies, (ii) potential acquisitions, (iii) financing plans and (iv) industry, demographic and other trends affecting our financial condition or results of operations. These forward-looking statements are based largely on management’s current expectations and are subject to a number of risks, uncertainties and changes in circumstances, certain of which are beyond their control. Actual results could differ materially from these forward-looking statements as a result ofActual results could differ materially from these forward looking statements as a result of several factors, including: general economic conditions affecting general business spending, consumer spending, consumer debt levels, seasonal nature of product sales, weather conditions, effects of supplier concentration, competitive factors within the HVAC/R industry, insurance coverage risks, prevailing interest rates, and the continued viability of our business strategy. In light of these uncertainties, there can be no assurance that the forward-looking information contained herein will be realized or, even if substantially realized, that the information will have the expected consequences or effects on Watsco or its business or operations. A discussion of certain of these risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements is i l d d i 10 K R t f th fi l d d D b 31 2007 i th ti ti dincluded in 10-K Report for the fiscal year ended December 31, 2007 in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements speak only as of the date the statement was made. Watsco assumes no obligation to update forward-looking information or the discussion of such risks and uncertainties to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking informationfactors affecting forward-looking information.

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Watsco, Inc.Company Overview Key Investment Highlights

Largest independent heating, air conditioning and refrigeration (“HVAC/R”) distributor in the US

− Revenues of $1.7 billion in 2008417 l ti i 34 t t

Market leader in large, growing industry− 8% market share

Significant barriers to entry− No do-it-yourself retailers

− 417 locations in 34 states − 40,000 contractor customers− Founded in 1947 as a manufacturer− Distribution began in 1989

E ti t d $26 billi k t (US

y− Significant upfront investment needed− “Sticky” customer base− Independents mostly original owners

(selective exit strategy)Estimated $26 billion market (US HVAC/R industry)

− Over 1,300 independents− Few large players

Add on / replacement market focus

− OEM approval needed (limited exit strategy)

Large, recurring revenue baseProven track record

10 CAGR %Add-on / replacement market focus− New construction about 15-20%

Buy & Build growth strategy− Successfully acquired 53 HVAC/R

distribution businesses since 1989

− 10 year revenue CAGR +5%− 10 year EPS CAGR +10%− Cash flow exceeding net income

Long-term focus on shareholder return via dividends & share repurchasesdistribution businesses since 1989 dividends & share repurchases

− Dividend CAGR +40% since 2000− Repurchased more than 6 million shares

Insider/employee ownership (25%)W ll it li d t t th i iti ti

3

Well capitalized to execute growth initiatives

HVAC/R Industry ParticipantsW t l k ll i th HVAC/R l h iWatsco plays a key roll in the HVAC/R supply chain…

ContractorsDistribution

$26bn marketFew large playersIndependent and

$65bn marketOver 100,000 licensed

t t

Manufacturers$20bn market7 major OEMs p

factory-owned networksFragmented industry with over 1,000 independents

contractorsPrimary decision makers in the home

1,000+ others50,000+ SKUs

p

…being the largest independent distributor in the US with 8% market share4

Industry ProfileHVAC/R di i th US i l lHVAC/R spending in the US is no longer a luxury…

Historical Market Growth (OEM Shipments) Key Drivers for Future GrowthOver 100 million existing homes have central air conditioning / heatingAging of the installed base of residential central air conditioners and furnaces

7.0

8.0

1990 - 2008 CAGR:New Housing -1.4%Replacement 4.2%Total 2.8%

at P

umps

(m)

furnacesIntroduction of new higher energy efficient modelsAddition of central air conditioning to homes that previously had only 3 0

4.0

5.0

6.0

s of

Uni

tary

A/C

& H

ea

heating productsConsumers’ overall unwillingness to live without air conditioning or heating products

0.0

1.0

2.0

3.0

OEM

Shi

pmen

ts

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

2008New Housing Replacement

Note: Above figures include 1-5 ton split system units1 Includes unusual shipment activity related to 10/13

SEER transition

…securing demand for products over varying economic cycles5

Source: Air Conditioning and Refrigeration Institute (“AHRI”)

Watsco’s Product MixW t ’ b idi i ff h i f d t tWatsco’s subsidiaries offer a comprehensive range of products to cater to contractor’s daily needs

2008 Product MixAir conditioning and heating equipment44% of revenues

− 20 brands, 6 equipment OEMsParts and supplies 43% of revenuesCommercial

f i ti

Air movement &

ventilation12%

Parts &controls

12%

Other A/C equipment& f pp %

− Sourced from over 600 vendorsCommercial refrigeration expanding

− Began in 1997, now 13% of sales

refrigeration13%

Metald t

& furnaces16%

U it A/C

Tools & other8%

products11%

Unitary A/Cequipment

28%

6

LocationsP t ti i i ti k t i k t i i t tPenetration in existing markets is key component in serving contractors

Watsco’s Current Footprint Location Density—5 Largest Markets

WatscoNext largest independent

Largest factory network

Texas 76 25 24Florida 83 15 24California 41 28 18Georgia 38 18 3Carolinas 50 18 23Total 288 104 93

417 locations in 34 states90% of Watsco’s revenues in US Sunbelt

Air conditioning an absolute necessity Replacement market demands:− Air conditioning an absolute necessity− Population migration / growth− Replaced more often from wear & tear− More dependable weather patterns

ep ace e t a et de a ds− Dense market coverage− Local relationships− Immediate availability− Broad product offering

7

Emphasis on Customer ServiceProduct− Convenient location network− Immediate availability

Decentralized Structure to Serve Customers

y− Competitive price & efficiency− One-stop for equipment, parts & supplies

Market development− Contractor credit

Customers / Contractors (40,000)

Warehouse / Drivers / Support (1,575)

− Advertising & marketing− Consumer financing & warranties

Technical expertise− Replacement solutions

Counter Sales (1,000)

Outside Sales (500)− Diagnostic & installation help− EPA certification− Building & zoning requirements

Training Business Unit

Branch & Regional Managers & Support

(500)

− Business & selling skills− Installing & servicing what we sell− New product launch

Presidents (9)

Corporate (20)

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Strategy for Acquisition Growth—Buy & BuildTh HVAC/R di t ib ti k t i hi hl f t d ith l h df l f lThe HVAC/R distribution market is highly fragmented with only a handful of players with meaningful size

Acquire strong, established businesses− Both in current footprint and in new markets− 269 locations acquired, 101 tuck-ins and 64 greenfield

Honor heritage and legacy

Generate additional revenues by introducing additional products− Leverage Watsco’s deep relationship with vendors− Execute SG&A best practices among subsidiaries− Multi-brand equipment offering− Private labels− Improve operating margins

Decentralized management structure− Allows for continued relationship with customer base

Watsco has successfully acquired 53 HVAC/R distribution businesses since 1989 9

Opportunity to Increase Market ShareTh i ifi t t iti f W t t i itThere are significant opportunities for Watsco to increase its presence in both existing and new markets

Texas

Estimated Market Size ($m)$0 $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000

Texas 76 8%State Locations Mkt Share

ArizonaIllinois

North CarolinaGeorgia

CaliforniaFloridaFlorida 83 25%

California 41 9%Georgia 38 11%N. Carolina 27 15%Illinois 1 0%Arizona 8 4%

N JMissouri

New YorkPennsylvania

MarylandVirginia

OhioOhio – –Virginia 11 8%Maryland 1 1%Penn. – –New York 2 1%Missouri 8 6%N J 1 1%

LouisianaArkansas

IndianaAlabamaMichigan

TennesseeNew JerseyN. Jersey 1 1%

Tennessee 19 18%Michigan – –Alabama 9 8%Indiana – –Arkansas 5 4%Louisiana 15 9%

MinnesotaOregon

WisconsinKansas

South CarolinaUtah

LouisianaLouisiana 15 9%Utah – –S. Carolina 23 21%Kansas 6 11%Wisconsin – –Oregon – –Minnesota – –

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$0 $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000

Minnesota

Watsco Others

esota

Source: ARI and Company estimates

2008 Profit Assurance InitiativeWatsco has improved operating profit by approximately $30 millionWatsco has improved operating profit by approximately $30 million in 2008…

Gross Profit Enhancements SG&A Improvements

Examine customer buying habits / pricing / systematic changeVendor deals

Gross Profit Enhancements SG&A Improvements

Fit manpowerFacilities rationalization

− Integrating locationsMore private label productsReduce freight costsInventory management initiativesCharge for value-added services

− Identifying excess capacity− Close underperforming

locationsIntegrationTougher discretion over “discretionary costs”Transfer fixed cost base to variable where possible

2009: Additional initiatives given revenue environment

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…and expects an additional $8 million in the first half of 2009

Financial Performance

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Revenue Growth and Cash Flow Generation

Revenue Operating Income

1.71.8 1.8 1.71.8

2.0 CAGR +4.0%135140

160 CAGR +11.0%

1.2 1.2 1.1 1.21.3

1.0

1.2

1.4

1.6

$bn)

84

117111

99

80

100

120

($m

)0 2

0.4

0.6

0.8

(

4351 53

62

20

40

60

(

0.0

0.2

2000 2001 2002 2003 2004 2005 2006 2007 2008

0

2000 2001 2002 2003 2004 2005 2006 2007 2008

13

Margin Analysis

Gross Margin Operating Margin

25.8% 25.8%26.0%

26.0%

26.5% Change +259bps

7 1%7.6%8.0%

9.0% Change +235bps

24.1%24.4%

24.8%

25.2%25.4%

24.5%

25.0%

25.5%

4.2%4.6%

5.2%

6.5%7.1%

6.3%5.8%

5.0%

6.0%

7.0%

23.4%

22 5%

23.0%

23.5%

24.0% 3.4%

1 0%

2.0%

3.0%

4.0%

22.0%

22.5%

2000 2001 2002 2003 2004 2005 2006 2007 2008

0.0%

1.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008

14

Per Share Analysis

Earnings per Share Dividends per Share

2.953 00

3.50 CAGR +17.0%1.75

1.80

2.00 CAGR +43.0%

1.83

2.54 2.432.18

2.00

2.50

3.00

($) 0.95

1.31

1.00

1.20

1.40

1.60

($)

0.62

0.951.11

1.37

0.50

1.00

1.50

0 10 0 10 0.120.20

0.38

0.62

0 20

0.40

0.60

0.80

0.00

2000 2001 2002 2003 2004 2005 2006 2007 2008

0.10 0.10 0.12

0.00

0.20

2000 2001 2002 2003 2004 2005 2006 2007 2008

15

A/R Management3.7%

3.4%

3 0%

3.5%

4.0%41.7

40.942.2

42.0

44.0

Days Sales Outstanding A/R: > 90 Days Past Due

2.3%

1.5%1.2%

2.1%

1.0%

1.5%

2.0%

2.5%

3.0%

36.6

34.4

32.534.0

36.0

38.0

40.0

0.0%

0.5%

2003 2004 2005 2006 2007 200830.0

32.0

2003 2004 2005 2006 2007 2008Note:1: Adjusted to include full year sales for ACR Group

1

Bad Debt Expense as % of Sales

0.30%

0 22%0 25%

0.30%0.35%

0.12% 0.11%

0.20% 0.18%0.22%

0.05%

0.10%0.15%

0.20%0.25%

16

0.00%

2003 2004 2005 2006 2007 2008

Cash Flow EvolutionCumulative Figures (2000 – 2008) Operating

Cash Flow$610m600

700

$610m

Net Income $439m

500

600

$439m

300

400

($m

)

Acquisitions$193m

Dividends $153m

200

CapEx$39m

Repurchases$100m

0

100

2000 2001 2002 2003 2004 2005 2006 2007 2008

17

2000 2001 2002 2003 2004 2005 2006 2007 2008

Investment HighlightsMarket leader in large, growing industry

− 8% market shareSignificant barriers to entry

N d it lf t il− No do-it-yourself retailers − Significant upfront investment needed− “Sticky” customer base− Independents mostly original owners (selective exit strategy)− OEM approval needed (limited exit strategy)

Large, recurring revenue baseProven track record

10 year revenue CAGR +5%− 10 year revenue CAGR +5%− 10 year EPS CAGR +10%− Cash flow exceeding net income

Long-term focus on shareholder return via dividends & share repurchases− Dividend CAGR +40% since 2000− Repurchased more than 6 million shares

Insider/employee ownership (25%)Well capitalized to execute growth initiatives

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Well capitalized to execute growth initiatives

Revolutionizing the HVAC Marketplaceg p