Good morning. My name is Adrian and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Year-end Earnings Report Conference Call. [Operator Instructions] Albert Nahmad, CEO, you may begin your conference.

Good morning, everyone, and welcome to our fourth quarter conference call. This is Albert Nahmad, President and CEO. With me is Barry Logan, Senior Vice President; and Paul Johnston, Vice President. First, our normal cautionary statement. This conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the Safe Harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. 2012, Watsco had an excellent year. First, here are a few highlights. Our international business expanded to a revenue run rate of about $500 million, with 53 locations in Canada, Mexico and Puerto Rico. We also operate a great export business that sells to other markets in the Americas and the Caribbean. We will continue opening new locations and adding products as we're very excited about our international business. In the United States, we grew market share for both residential and commercial product segments. Residential unit growth was especially strong in the fourth quarter and that the momentum has carried into 2013. We saw growth in sales of R410A replacement systems including growth in the premium tier 16 plus SEER systems. Partially offsetting this was a higher sales mix of base level of 13 SEER systems. In other words, equipment sales were strong at the high and low ends of the product offering with a decline in the middle. We believe this reflects some of the uncertainty consumers are feeling about the economy. Longer-term, the trend toward consumer upgrades -- let me start that again. Longer-term, the trend towards consumer upgrading existing systems to more efficient and environmentally friendly products versus patching up their old system, is what is important. We would expect that sales mix to improve the economy along with enacted EPA regulations that will raise minimum…

[Operator Instructions] Your first question comes from the line of a person whose line has not been transcribed. [Operator Instructions]

This is Sanjay from Lazard. A couple of questions here guys. First, can you talk a bit more about, sort of -- I know you guys are sort of evaluating at this point in time, but how should we really be thinking about the dividend payout for you guys this year? Anything more you could share us on that front would be very helpful.

Well, our history shows that we certainly like sharing cash flow with shareholders and given the fact that we paid a regular dividend last year, but also had a special dividend of $5 per share. We have not changed our posture that in the future that we will like to share increasing amounts of cash flow with shareholders. So we're very much of the same mind. We just want to see how the year turns out and see -- and pay off some of the debt that we incurred to pay the special dividend. But I think, you can take from my comments that we are of the same mind. We've always been of increasing dividends per share as time goes on.

Fair enough. So 2 quick follow-up then if I may. One of the comments you made in your prepared remarks about the high-end products doing well and, two, parts business doing well. Can you go into that a little bit more detail as to what sort of driving some of that because -- and I have one more follow-up after that.

Sure. Go ahead, Mr. Johnston, Paul.

Okay. The parts and supply business began performing in the fourth quarter. And we talked at every one of the other conference calls that it's been flat to down. We finally saw it rebound in the fourth quarter, primarily due to the life that we're seeing in the residential new construction market. We're still seeing a split between high and low equipment sales that we've been experiencing for most of this year. And that trend did continue in the fourth quarter where we had the high efficiency product being sold and we have the low end of our 13 SEER products that continue to show life. The expectation that we would have is that we're going to see the middle ground start growing as the residential new construction picks up because that generally will tend to be not a 13 SEER product. It will generally tend on the single-family side, to be a 14 SEER because that's the minimum requirement to get the Energy Star certificate.

Your next question comes from the line of another person whose line has not been transcribed. [Operator Instructions] Ryan Merkel - William Blair & Company L.L.C., Research Division: It's Ryan Merkel, William Blair. So I wanted to start back about the mix again. Could you just give some numbers? What percent of the equipment mix is at the 13 level versus 14, versus 16 plus? And maybe if you could just give it for the year, I'm not that concerned about the quarter.

I don't know. Do we provide that kind of detail Barry or Paul?

No. We really haven't, we're...

We're not.

We're -- Ryan, if you take the growth rate, and, again, average it down for the 13 SEER and average it up some for 16, that gives you a sense for where the middle is. But I'd rather not give out the specific mix of 13, 14, 16 and so on. Ryan Merkel - William Blair & Company L.L.C., Research Division: Well, let me ask it a different way. What inning do you think we're in for this mix down to the lower SEERs and then maybe even within SEERs, aren't you seeing a preference for value lines which also hurt some? So just wondering if -- I think, we've seen this the last 2 years, are we at the bottom here and potentially with maybe the economy getting better and housing better, we could see a mix back up which could be a tremendous benefit?

I agree with the outlook that you just said once that occurs. I don't know that we're ready to call that timing yet. But I think when it -- when that occurs it will be very positive. Ryan Merkel - William Blair & Company L.L.C., Research Division: But you would agree that over the past 2 years it's gone against you? The mix and...

Ryan, the reality is, the sensitivity of the season -- our seasons will really begin in earnest in the spring and summer, and that's where -- that ain't really the -- a question can be answered. It's not something that is a trend in the shorter months here where it's off season. Ryan Merkel - William Blair & Company L.L.C., Research Division: Okay. And then in terms of the commentary about the residential getting better and even the new construction, can you just give some numbers with regards the fourth quarter? The new housing, how much was it up? And then could you just be a little bit more specific, what signs specifically are you seeing that tells you the new housing market is getting better for your products?

Who wants it? Barry or Paul? Paul, go ahead.

I can start it out and, Barry, chime on in. I always look for the leading indicator to be any sort of duct work that goes in. Generally it happens after the frame up in roof occurs. And we've definitely seen a nice increase -- double-digit increase in duct products that we're selling. And we're starting to experience that. Obviously it's starting in the Southeast and it's moving West with the weather. So that's that the leading indicator that says something good is going to happen on the equipment side. On the equipment side, yes, we did see some equipment flow through. On a percentage basis, it really doesn't mean much because the numbers are starting from such a small base that as the equipment occurs, I think, it's going to happen first quarter, second quarter, we'll have a better idea as far as how big the new construction market is going to be for us on the equipment side. But we're definitely seeing the beginning of it with the duct work.

Your next question comes from the line of another person whose line has not been transcribed.

They don't even know they're on.

No, they don't.

Adrian, you got to do a better job. Come on. Let's go to the next one.

The next person's line is now open.

Go ahead. Could you please identify yourself?

It's Josh Pokrzywinski, MKM. Just wanted to dig in here a little bit on the mix. It seems like with the fourth quarter, obviously, you guys are seeing some of the RESI side pick up and I think back to an earlier question, it's not just about SEER, it's kind of about feature on the units beyond that. It seems like you had a couple of mixed tailwinds there in the fourth quarter, namely commercial refrigeration, which I think, you guys do pretty well on. And then thinking about new construction, maybe picking up here a little bit, but obviously replacement becomes more important in through the spring and summer. It seems like all the OEMs are talking about that being a continued pressure on the mix side whether it's low SEER or low feature. Can we expect more gross margin pressure in the coming quarters just as, maybe, commercial refrigeration is against tough comps and more of that replacement element comes into play?

Paul?

Well, I wish I had a great answer for you Josh, on that one. But I think, what we're seeing right now in the commercial refrigeration, a lot of that growth came on the equipment side of commercial refrigeration, not from our standard parts and piece type business that we do in that area. So, that I hope continues because that just means we're gaining more and more market share in the equipment that we're selling out there, which means more opportunity for aftermarket for us later. If we get into the actual SEER, is it over with a 13 SEER being compressed down to what we call a cube or a strip down 13 SEER, as opposed to a feature 13 SEER? I don't have a sense for it; I have only an opinion. And my opinion is, that I think, it's going to be some tough sledding for a couple quarters. When it comes on the replacement side, it's going to -- the consumer is still, probably is going to be hurting.

So just thinking about...

The good news though is -- the good news is, like I said earlier, the 14 SEER, is something that you're going to see on a lot of the residential new construction. It doesn't mean it's going to come in at a better margin because it is new construction.

I totally understood. I guess it -- but it does have the advantage of pulling in some of those -- the ancillary parts and supplies, too.

That's right.

Just thinking about that seasonally though, I would imagine that in the 2Q, 3Q, the replacement element becomes more important or -- like how should we think about that versus the cadence of new construction for your business?

Well, there's no question that we're an aftermarket business primarily, and that will always be the most important thing. I think of new construction as a bit of a lift. But fundamentally, we're in the aftermarket and that's the largest part of the industry and we're the leading player there.

Okay. And then just one last question on the dividend. Should we think about as kind of a binary outcome that you guys kind of keep it down until you're prepared to take it back up closer to that, call it, $0.62 level you're running before. Is there at possibility -- you kind of meet people half way as...

As we do this?

Yes. I just get more confidence that...

We're pretty confident of our cash flow because we've been at this for many years. At what rate will we increase it? I don't think we should make a prediction. But in terms of what it might end up long-term, we expect to go beyond what we have done in the past because this company is growing. It's going to be a much bigger company. And the cash flow, we expect they're going to substantially grow. And there's no limit to where we're going to do the sharing of the cash with dividend. So I don't think there's any benchmark that's been set that we will not exceed a certain amount. I think, we'll just keep going. We see no big clouds ahead of us in terms of fundamentally growing the business, and so I can say that there's just no limit to what we're thinking in terms of cash dividends.

Okay. But in terms of the pace of the increasing in the future is not...

That sort of depends on a lot of -- I haven't mentioned this yet, but our investment. And we are always acquisition-minded and we will be looking at cash needs for that as well.

Your next question comes from the line of Jeff Hammond. [Operator Instructions]

This is Chris Sikora filling in for Jeff Hammond with KeyBanc. I know it seems like it's been a fading issue, but can you talk a little bit about R-22 as a percent of sales and maybe how you see that trending into 2013?

You know, I don't know. Go ahead, Paul.

Only if you promise this is the last time we talk about dry charge. I think, it's about run its course. It's a very, very small percent of our sales, which it was at the end of the third quarter and it continues to trail off in the fourth quarter. We expect even further pressure on that side of the market to ramp-up as the EPA has actually reduced the amount of allocation that they're going to provide to the industry for R-22 in 2013. The expectation right now is -- excuse me, the amount of R-22 that's going to be available in the market is probably going to be down from close to 60 million pounds last year down to 40 million. So I think that's going to, hopefully, be the final nail in the coffin of that product line.

And then in the past I know -- I think we kind of talked about some profitability issues with Carrier Canada. Did that improve in 4Q '12 and -- or any progress made there?

Well, we're that not going to comment on individual units, profitability on individual units.

Your next question comes from the line of Ryan Mirley (sic) [Merkel]. Ryan Merkel - William Blair & Company L.L.C., Research Division: It might be Ryan Merkel. I just wanted to get a bit more color, if you would, by geography, because some of my channel checks in the Southeast actually reported pretty lackluster organic sales trends, yet you guys put a pretty nice 7% same-store sales number. So can you just talk a little bit about where the strength was?

Yes. We had a pretty good Southeast...

Yes. I mean, Ryan, 80% of our volume is in the Southeast, so that means we probably took market share from the channel check. Ryan Merkel - William Blair & Company L.L.C., Research Division: Okay. Okay. And what about Texas?

I mean I would include that in our Southeast. Really, 80% of our business is Texas to D.C. down to Miami that would fit that profile. Ryan Merkel - William Blair & Company L.L.C., Research Division: Right. I was just wondering the growth rate in Texas. I think it was...

Ryan, but you're missing the ball on the international business. That's a very strong business for us. Ryan Merkel - William Blair & Company L.L.C., Research Division: Okay. So the international export business, those were big drivers?

Yes. Well, we said that at the beginning of this call, it's almost $0.5 billion and it's growing very rapidly. And we're very good at it. And when I say international, we're talking about this hemisphere, Canada, Mexico. And then where we have locations in Puerto Rico, we have locations -- but we're also exporting throughout the rest of the Latin America. And that's a fast-growing business. Ryan Merkel - William Blair & Company L.L.C., Research Division: Okay. And just last question for me. The refrigeration business is very, very strong. Can you just talk about what's really driving that business, and is R-22 in there and are those sales pretty strong given the price increase?

It's predominantly equipment. We added more product into that segment which is really -- and put it into more locations and more territories throughout the country and we're seeing the benefits of what we seeded last year is actually coming out right now and that is where we're growing share in ice machines, we're growing share on compressors, et cetera. So it's been a good story for us.

Your next question comes from the line of Stephen Ragard.

Stephen, in for Matt. Just a few questions here. Do you have how much Carrier Canada contributed to sales this quarter?

No. We're not going to breakout those sort of thing.

What I would say is what you can see in the press release...

It's part of the $0.5 billion that we have broken up, but I don't want to get into breaking the $0.5 billion into pieces.

Okay. And then I guess, just a couple of housekeeping items. Can you give us D&A and CapEx for the quarter? You have that with you?

Sure. D&A is about 7 million and CapEx is 3.

Your next question comes from the line of Paul Bett [ph].

Your organic SG&A went up 4% in the quarter. Was there anything special or different this quarter?

If there's any individually that affected that number, we are -- as we mentioned earlier, we are growing some product lines, so there are some headcount attached to that and our international business, as we mentioned too, has had some remarkable growth and we're making some investments there. Nothing that stands out in terms of any individual events or circumstances.

Okay. And just for clarification, did you D&A was 7 million in the quarter?

Yes.

Okay. Is there a reason for that increase, because hasn't been running about 3 million.

That's depreciation. If I add amortization to it and amortization of stock, restricted stock, it comes up to 7 million.

Okay.

I can't tell where you're comparing it to, but that's the number for the quarter.

Your next question comes from the line of Keith Hughes.

Just back to the gross margin. We've seen declines for most of the year and in the quarter. Is that solely due to the mixes -- mix that you talked about at the beginning of the call or are there other contributing factors?

Barry?

Keith, the mix is the largest reason by far. And also the -- obviously, the strength in commercial has a lower margin as well that would affect the mix to some extent. And the stronger growth rate in equipment versus non-equipment would also account for some of the difference.

Shouldn't that start correcting itself for non-equipment. Wouldn't that be self-correcting to a certain extent in '13?

Yes. I mean, the growth in the non-equipment, in terms of showing up for an entire year in 2013, if that's the case, should help margin, yes. We highlighted it for the fourth quarter from the revenue point of view. For it to have an impact on margin, it really needs to sustain itself through 2013 and on.

I guess finally, within the mix within commercial, you were saying, I believe, in the prepared comments that there was strong new equipment orders associated with that. Is that lower, lower gross margin as well compared to the rest of commercial -- refrigeration, I'm sorry?

It's lower than the rest of the commercial -- or the commercial refrigeration margins, yes. Equipment is a lower margin in commercial refrigeration than the rest of it -- of the products.

How is it, as a unit now, compare to what you're seeing in your Residential business; is it still lower?

Repeat that?

So if we look at commercial refrigeration over a cycle, are we going to perpetually see it below what we see in the residential market or there some -- substantial they are pushing it lower now?

I don't know. I've never looked at it that way. I don't have an answer. I'll check that out for you.

Your next question comes from the line of David Manthey. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: I'm with Baird. The question is, on the -- also on the cost side. And when we strip things out, sort of look at the core organic contribution margin, I'm coming up with something sort of in the upper single-digits, and it seemed like the fourth quarter contribution margins were actually negative. I'm just trying to figure out, as we're looking to 2013, you discussed the SG&A being a little bit hot in the fourth quarter here. As we're looking forward, I mean, do you get contribution margins that are in the low double-digits if you get an acceleration in same-store sales or we're going to be kind of hovering here where we are?

No, David, we don't expect to hover. I think, if you look at a 3- or 4-year period and not a single quarter in the fourth quarter, we don't see any difference from the outlook looking ahead than the longer-term average. I wouldn't draw too many inferences in an off-season fourth quarter with some of the SG&A investments we've decided to make. Those are investments for next year. It's producing some sales growth and expect to produce more sales growth and leverage those expenses. So, if you look at a 2- or 3-year average, going back to 2009, '10, '11, and you can see the contribution margins in those ranges, I think, going forward. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: Got it. Okay. So these -- the investments you're talking about, these are sort of one-time deal, this is not ongoing run rate stuff, and because it shows up in the fourth quarter, it just shows negative leverage?

I wouldn't say hiring great salespeople and recruiting strong leaders a one-time event. That's something we've gotten more aggressive with, I think, as the year closed out, as we got into 2012 and see some of the outlook for 2013. Those aren't one-time events; those are important investments and we expect to see the benefit of them. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: Okay. All right. And then a question I've been struggling for some time here. In terms of this shift from repair back to replacement of systems and along with that, I guess, the resurgence in construction and so forth, is there a point out there that you think that we'll actually see double-digit gains in overall same-store sales? We just seem that you're selling a replacement unit in the system and everything around it as it relates to new construction, those ticket items would be much, much higher than just to repair product, and I'm wondering do you see a timeout there? If that trend really takes hold, that we should be looking at double-digit kind of organic growth?

I hope so. I would think that -- logic tells you that would occur.

We're going to have start seeing better replacement because you're -- we're replacing the coil, you're replacing, in some cases, the air handle when you replace the 410 unit. So, yes, we're starting to see some -- the indoor unit sales are starting to pick up. And then obviously, we've always talked about our ticket item -- if we get a complete house, the full ticket for a house is obviously better than a replacement unit is even so. But the combination of those 2 could yield us with a double-digit growth rate.

Your next question comes from the line of Keith Hughes.

Just a follow-up question on -- specifically on residential, man. I know you had a very strong first quarter of last year that was weather influenced. Can you give us any sort of feel how you've been running up against the tough comps here for the first quarter?

Well, March is the key to the first quarter. It's bigger than January and February combined. So it's hard to give you a very accurate picture, except I can tell you that I like January and February.

Okay. Out of the last year, were January and February the really -- I know they're smaller months, but they were -- were they really the big driver on that strong number, they were just so abnormally good?

Good for you, you have that kind of a memory. All I know is I like January and February this year. But I'm not going to go crazy about it until I see March.

[Operator Instructions] Your next question comes from the line of a person who did not leave their information.

Person who didn't leave the information, who are you? I guess, we don't have one.

There are no further questions at this time.

All right. Thanks very much guys. Talk to you next quarter. Bye.

This concludes today's conference. You may now disconnect.