FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ___________
COMMISSION FILE NUMBER 001-12837
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PAMECO CORPORATION
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(Exact name of registrant as specified in its charter)
GEORGIA 51-0287654
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1000 CENTER PLACE
NORCROSS, GA 30093
----------------------------------------
(Address of principal executive offices)
(770) 798-0700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes /X/ No / /
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest practical
date. Class A Common Stock, $.01 par value, 4,661,202 shares and
Class B Common Stock, $.01 par value, 4,046,346 shares, both as
of January 8, 1998.
<PAGE>
PAMECO CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-November 30, 1997
and February 28, 1997 3
Condensed Consolidated Statements of Income-Three
Months ended November 30, 1997 and 1996 4
Condensed Consolidated Statements of Income-Nine
Months ended November 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows-Nine
Months ended November 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES
2
<PAGE>
PART I. FINANCIAL INFORMATION
PAMECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
November 30, February 28,
1997 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 115 $ 145
Accounts receivable, less allowance of $3,661 at November 30, 1997 31,529 17,811
and $2,535 at February 28, 1997
Inventories 99,590 107,477
Prepaid expenses and other current assets 3,289 932
--------- ---------
Total current assets 134,523 126,365
Property and equipment, net 8,130 5,647
Excess of cost over acquired net assets, net 19,303 8,411
Other assets 541 693
Deferred income tax assets 8,447 8,253
--------- ---------
Total assets $ 170,944 $ 149,369
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 60,848 $ 57,024
Accrued expenses 22,997 20,717
Notes payable 7,700 --
Notes payable to affiliate -- 14,100
Current portion of capital lease obligations and other debt 40 375
--------- ---------
Total current liabilities 91,585 92,216
Long-term liabilities:
Debt 3,111 29,800
Debt to affiliates -- 4,500
Capital lease obligations 593 79
Warranty reserves and other 2,435 1,920
--------- ---------
Total long-term liabilities 6,139 36,299
Excess of acquired net assets over cost, net 5,305 6,223
Shareholders' equity:
Common stock $.01 par value-authorized 60,000 shares; 8,700 and
6,358 shares issued and outstanding at November 30, 1997 and
February 28, 1997, respectively 87 64
Capital in excess of par value 37,014 1,841
Retained earnings 31,414 23,226
--------- ---------
68,515 25,131
Note receivable from shareholder (600) --
Treasury stock at cost 1,250 shares at February 28, 1997 -- (10,500)
Total shareholders' equity 67,915 14,631
--------- ---------
Total liabilities and shareholders' equity $ 170,944 $ 149,369
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
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PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $117,197 $84,685 $377,392 $297,139
Costs and expenses:
Cost of products sold 89,623 64,113 288,825 225,128
Warehousing, selling, and administrative expenses 25,068 19,378 72,742 59,767
Amortization of excess of acquired net assets over cost (306) (306) (918) (918)
-------- ------- -------- --------
114,385 83,185 360,649 283,977
-------- ------- -------- --------
Operating earnings 2,812 1,500 16,743 13,162
Other expense:
Interest expense, net (173) (739) (1,411) (2,139)
Other expense (896) (592) (2,504) (1,407)
-------- ------- -------- --------
Income before income taxes 1,743 169 12,828 9,616
Provision for income taxes 544 46 4,640 2,513
-------- ------- -------- --------
Net income 1,199 123 8,188 7,103
Redeemable preferred stock dividends -- 182 -- 424
-------- ------- -------- --------
Net income/(loss) applicable to common shareholders $ 1,199 $ (59) $ 8,188 $ 6,679
======== ======= ======== ========
Net income/(loss) per share $ 0.13 $ (0.01) $ 1.04 $ 1.02
======== ======= ======== ========
Weighted average number of common and common equivalent
shares outstanding 9,099 6,378 7,840 6,525
======== ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
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PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,188 $ 6,679
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of excess of acquired net assets over cost (918) (918)
Depreciation and other amortization 1,515 1,219
(Gain)/loss on sale of property and equipment 52 (17)
Changes in operating assets and liabilities net of assets
acquired and liabilities assumed:
Accounts receivable (2,915) 21,090
Inventories, prepaid expenses and other assets 17,903 (8,161)
Accounts payable and accrued liabilities (8,261) 3,182
--------- --------
Net cash provided by operating activities 15,564 23,074
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment (2,253) (1,504)
Proceeds from sale of property and equipment 84 34
Business acquisitions (20,629) (27,280)
--------- --------
Net cash used in investing activities (22,798) (28,750)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on working capital facility 404,462 297,457
Repayments on working capital facility (431,102) (296,377)
Borrowings/(Repayments) on term loan (18,600) 19,500
Borrowings on note payable 7,700 --
Payments on capital lease obligations (334) (407)
Payments on other debt (17) (25)
Redemption of Preferred Stock -- (4,000)
Issuance of common stock, net of expenses 45,133 --
Repurchase of treasury stock (1,207) (10,500)
Proceeds from exercise of stock options 1,169 --
--------- --------
Net cash (used in) provided by financing activities 7,204 5,648
--------- --------
Net decrease in cash and cash equivalents (30) (28)
Cash and cash equivalents at beginning of period 145 115
--------- --------
Cash and cash equivalents at end of period $ 115 $ 87
========== ========
Issuance of common stock in exchange for note receivable $ 600 --
========== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOVEMBER 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period
ended November 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending February 28,
1998. The sale of products by Pameco Corporation (the "Company"
or "Pameco") is seasonal with sales generally increasing during
the warmer months beginning in April and peaking in the months of
June, July, and August. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the Company's Registration Statement on Form S-1 (No. 333-
24043) and final prospectus dated June 4, 1997 filed with the
Securities and Exchange Commission.
The balance sheet at February 28, 1997 included herein has
been derived from the audited financial statements at that date
but does not include all the information and footnotes required
by generally accepted accounting principles for complete
financial statements.
2. INVENTORIES
Inventories consist of goods held for resale and are stated
at the lower of cost or market. Cost is determined by the first
- -in, first-out method.
3. INITIAL PUBLIC OFFERING
On June 4, 1997, the Company completed an initial public
offering ("IPO") of its Class A Common Stock. A total of
4,115,441 shares were sold at $14 per share, including 536,797
shares sold pursuant to the underwriters overallotment option and
578,644 shares sold by certain selling shareholders. The Company
did not receive any of the proceeds from the sale of shares of
Class A Common Stock by the selling shareholders. The net
proceeds to the Company were approximately $45.1 million and were
used to repay $11.1 million of outstanding indebtedness to
certain members and affiliates of a group of investors in the
Company, to repay approximately $33.1 million of the outstanding
balance of the Company's $100.0 million revolving credit line
(the "Working Capital Facility"), and to repurchase 206,847
shares of Common Stock from certain shareholders, including
members of the aforementioned investor group, for an aggregate
purchase price of approximately $1.2 million.
On June 3, 1997, Pameco Holdings Inc. ("PHI") and Pameco
Corporation, both Delaware corporations, were merged with and
into the Company, and in connection therewith the shareholders of
PHI received 1.25 shares of the Company's Class A Common Stock
or Class B Common Stock, as agreed upon among themselves, for
6
<PAGE>
each share of Class A Common Stock and Class B Common Stock of
PHI held by them immediately prior to the merger. The Company's
Class A Common Stock entitles its holder to one vote per share,
whereas the Class B Common Stock generally entitles its holder to
ten votes per share.
Prior to the IPO, certain shareholders of the Company agreed
to sell to the Company shares of Common Stock equal to the number
of shares issued as certain stock options were exercised at a
price equal to the exercise price of such stock options. The
Company has repurchased all of the 206,847 shares subject to this
arrangement at the time of the IPO from such investors, and such
shares have been retired. Upon exercise of these stock options,
the Company issued its Class A Common Stock.
4. EARNINGS PER SHARE
Historical earnings per share was computed using the
requirements of Accounting Principles Board Opinion No. 15 and
SEC Staff Accounting Bulletin No. 83.
Pursuant to SEC Staff Accounting Bulletin No. 83, common
stock and common stock equivalents issued at prices below the
initial public offering price per share ("cheap stock") during
the twelve month period immediately preceding the initial filing
date of the Company's Registration Statement for the IPO have
been included in historical earnings per share as if outstanding
for all periods presented (using the treasury stock method at the
IPO price).
Supplemental historical net income per share for the three
months and nine months ended November 30, 1997 was $0.13 and
$0.98, respectively. Supplemental net income per common share was
computed using the weighted average number of common and common
equivalent shares outstanding as described above, and also
considering the reduction in interest expense from the repayment
of long term debt of $44.2 million with proceeds of the IPO as if
such shares had been issued and repayment had occurred at the
beginning of the fiscal period.
5. ACQUISITIONS
In March 1997, the Company purchased the heating,
ventilation, and air conditioning ("HVAC") operations and related
assets of Bellows-Evans, Inc., a distributor of HVAC equipment in
Birmingham, Alabama, a new market for the Company. The acquired
business had revenues in excess of $3.0 million for the year
ended May 31, 1996 and derived substantially all of its revenues
from the sale of HVAC products.
In April 1997, the Company purchased the HVAC operations and
related assets of Trigg Supply, Inc., a distributor of HVAC
products in Ft. Worth, Texas. The acquired business had revenues
of approximately $1.3 million for the year ended December 31,
1996 and derived all of its revenues from the sale of HVAC
products.
In July 1997, the Company purchased the HVAC operations and
related assets of Heating Cooling Distributors, Inc., a
distributor of HVAC equipment in Indianapolis, IN, a new market
for the Company. The acquired business had revenues in excess of
$2.0 million for the year ended December 31, 1996 and derived
substantially all of its revenues from the sale of HVAC
7
<PAGE>
products.
In August 1997, the Company purchased the HVAC operations
and related assets of Saez Refrigeration, Inc., and Saez
Refrigeration of Hialeah, Inc. a distributor of HVAC equipment in
Miami, FL. The acquired business had revenues in excess of $13.0
million for the year ended December 31, 1996 and derived
substantially all of its revenues from the sale of HVAC
products.
In August 1997, the Company purchased the HVAC operations
and related assets of Superior Supply Company, a distributor of
HVAC equipment in the Midwest. Of the thirteen locations, ten
are in new markets for the Company. The acquired business had
revenues in excess of $20.0 million for the year ended January
31, 1997 and derived its revenues from the sale of HVAC and
refrigeration products
In September 1997, the Company purchased the HVAC operations
and related assets of General Heating and Cooling Company, a
distributor of HVAC equipment in the Midwest. Two of the eleven
locations acquired are in the top 100 Standard Metropolitan
Statistical Areas. The acquired business had revenues in excess
of $25 million for the year ended December 31, 1996 and derived
substantially all of its revenues from the sale of HVAC products.
6. RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board
issued Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128") which is required to be adopted for the year
ending February 28, 1998. At that time, the Company will be
required to change the method currently used to compute earnings
per share and restate prior periods. Under the new requirements
for calculating earnings per share, the dilutive effect of stock
options will be excluded. Management believes the impact of the
adoption of SFAS 128 will not be material.
7. CONTINGENCIES
On November 18, 1996, United Refrigeration, Inc. ("United"),
a competitor of the Company, filed suit against Pameco in the
United States District Court for the Eastern District of
Pennsylvania claiming that Pameco had tortiously interfered with
United's alleged contract to purchase Sid Harvey's southeastern
business operations (the "Southeastern Assets"). United asserts
that beginning on or about August 23, 1996, it met with Sid
Harvey and thereafter negotiated an agreement (allegedly
finalized on or about October 24, 1996) to purchase the
Southeastern Assets for approximately $26 million and that Pameco
tortiously interfered with this alleged contract by offering
"substantial inducements" to Sid Harvey and by itself purchasing
the Southeastern Assets. In the alternative, United claims that,
should the agreement be deemed unenforceable, Pameco tortiously
interfered with United's prospective contractual relations with
Sid Harvey. On February 18, 1997, United filed an amended
complaint adding Sid Harvey as a defendant. In the amended
complaint, United claims that Sid Harvey (i) breached its
agreement to sell the Southeastern Assets to United; (ii)
committed fraud in the inducement of that alleged contract; (iii)
negligently misrepresented certain facts concerning the sale of
the operations and Sid Harvey's intention to carry out the sale
8
<PAGE>
of those assets and (iv) was unjustly enriched by certain
information obtained from United during the United-Sid Harvey
negotiations.
Although the amended complaint does not demand specified
damages, it asserts that United should recover the "loss of its
bargain," which United estimates to be $11.4 million, plus
punitive damages. Upon consummation of the Southeastern Assets
acquisition, Pameco agreed, based on certain written
representations made by Sid Harvey about the status of its
discussions with United, to indemnify Sid Harvey against all
liabilities arising out of any action filed by United in
connection with the purchase of the Southeastern Assets.
On July 5, 1996, three former employees filed suit against
Pameco and a Company supervisor in the Superior Court of the
State of California, County of Stanislaus, alleging various
tortious acts and that the Company maintained a hostile work
environment. The suit also asserts that in permitting the
alleged harassment of the plaintiffs by its supervisor that
Pameco violated the California Fair Employment Housing Act by
failing to provide a harassment free work place. The plaintiffs
have cumulatively sought $1.8 million in damages, including $1.5
million in punitive damages from Pameco. On December 17, 1997,
the Company was granted a Motion for Summary Adjudication which
dismissed, with prejudice, the plaintiffs' causes of action for
violation of the California Fair Employment and Housing Act and
for premises liability. The Company will continue to vigorously
defend itself against the two remaining causes of action.
The Company is involved in other claims and legal
proceedings which have arisen in the ordinary course of its
business. The Company intends to vigorously defend all such
claims and does not believe any such matters or the actions
described above will have a material adverse affect on the
Company's results of operations or financial condition.
9
<PAGE>
PAMECO CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of
certain statement of operations data to net revenue for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30 November 30
------------------- -----------------
1997 1996 1997 1996
------------------- -----------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 76.5 75.7 76.5 75.8
------------------ ----------------
Gross profit 23.5 24.3 23.5 24.2
Warehousing, selling, and administrative expenses 21.4 22.9 19.3 20.1
Amortization of excess of acquired net assets over cost (0.3) (0.4) (0.2) (0.3)
------------------ ----------------
Operating earnings 2.4 1.8 4.4 4.4
Other expense:
Interest expense, net (0.1) (0.9) (0.3) (0.7)
Other expense (0.8) (0.7) (0.7) (0.5)
------------------ ----------------
Income before income taxes 1.5 0.2 3.4 3.2
Provision for income taxes 0.5 0.1 1.2 0.8
------------------ ----------------
Net income 1.0% 0.1% 2.2% 2.4%
================= ===============
</TABLE>
RESULTS OF OPERATIONS
Net sales of $117.2 million in the third quarter ended
November 30, 1997 increased 38.4% from $84.7 million for the
comparable period in 1996. Same store daily sales increased 9.3%
in the third quarter as compared to the prior year. Net sales of
$377.4 million in the nine months ended November 30, 1997
increased 27.0% from $297.1 million for the comparable period in
1996. Same store daily sales increased 8.7% in the nine month
period as compared to the prior year.
Excluding the effect of acquisitions, the net sales increase
was the result of a 13.0% increase on a daily same store basis in
the sales of HVAC products in the quarter ended November 30, 1997
as compared to the prior year. For the nine months ended November
30, 1997, HVAC sales on a daily same store basis increased 15.6%
as compared to the prior year. Increased sales in the Company's
ThermalZoneTM private label equipment line contributed
significantly to this increase. Sales of refrigeration equipment,
parts, and supplies increased 4.8% on a daily same store basis in
the third quarter as compared to the prior year. Sales of
refrigeration equipment, parts, and supplies increased 2.7% on a
daily same store basis in the nine months ended November 30, 1997
as compared to the prior year.
10<PAGE>
In the quarter ended November 30, 1997, gross profit
increased to $27.6 million from $20.6 million in the prior year,
an increase of 34%. Gross profit in the nine months ended
November 30, 1997 increased 23.0% to $88.6 million from $72.0
million in the prior year. Greater sales volume in the quarter
and the nine months ended November 30, 1997 was the primary
reason for the increase in gross profit. The gross profit
percentage decreased to 23.5% during the quarter ended November 30,
1997 as compared to 24.3% during the same quarter in the
prior year. In the three months ended November 30, 1997, the
Company continued to increase the sales volume of its lower
margin ThermalZoneTM product line at a faster rate than its
higher margin refrigeration products. The gross profit percentage
decreased to 23.5% during the nine months ended November 30, 1997
as compared to 24.2% during the previous year. As indicated
above, the Company has experienced significant growth in the nine
months ended November 30, 1997 in its HVAC product sales. Also, a
one time sell-off of CFC-based refrigerants in the second quarter
of the prior year generated higher gross margins for that period.
Finally, in the second quarter of the current fiscal year, the
Company was forced, in certain markets, to meet the lower prices
offered by smaller distributors who were overstocked due to the
unseasonably mild weather.
Warehousing, selling, and administrative expenses during the
third quarter increased 29.3% to $25.1 million from $19.4 million
in the prior year. For the nine months ended November 30, 1997,
warehousing, selling, and administrative expenses increased 21.7%
to $72.7 million from $59.8 million in the prior year. The
addition of the normal operating expenses of the acquired
branches contributed significantly to the increase in the
warehousing, selling, and administrative expenses in the quarter
and for the nine months ended November 30, 1997. In addition,
the Company has added to its salesforce to focus on sales at the
local and national account level. As a percentage of net sales,
warehousing, selling, and administrative expenses decreased to
21.4% in the third quarter from 22.9% in the prior year. As a
percentage of net sales, warehousing, selling, and administrative
expenses for the nine months ended November 30, 1997 decreased to
19.3% from 20.1% in the prior year. Through the third quarter,
the growth in sales volume has continued to outpace the related
increase in incremental warehousing, selling, and administrative
expenses.
Interest expense during the quarter ended November 30, 1997
decreased to $173,000 from $739,000 in the previous year.
Interest expense during the nine months ended November 30, 1997
decreased to $1.4 million from $2.1 million in the previous year.
The Company's average borrowings under the Working Capital
Facility decreased by $11.9 million in the three months ended
November 30, 1997 over the previous year. The Company's average
borrowings under the Working Capital Facility decreased by
$537,000 in the nine months ended November 30, 1997 over the
previous year. In the past twelve months, the Company incurred
additional borrowings for strategic acquisitions and the
repurchase of common and preferred stock in November 1996. The
Company successfully completed a refinancing of its Credit
Facilities (as defined below), including the addition of an
accounts receivable program (the "Securitization Program"), in
early 1996, lowering the rate of interest that it pays on its
debt. The Securitization Program was recorded as a sale of
assets; therefore, approximately $43.5 million of accounts
11<PAGE>
receivable and debt are not reflected on the Company's balance
sheet at November 30, 1997. The discount on the sale of accounts
receivable of $834,000 and $553,000 for the three months ended
November 30, 1997 and November 30, 1996, respectively, was
recorded as other expense on the income statement. The average
rate of interest on all debt, including the Securitization
Program, for the quarter ended November 30, 1997 was 7.3% as
compared to 7.4% for the previous year.
Income taxes increased $498,000 to $544,000 for the quarter
ended November 30, 1997 due to greater income before taxes and
the increase in the effective tax rate. Income taxes increased
$2.1 million to $4.6 million for the nine months ended November
30, 1997 for the same reasons. The Company's effective tax rate
for the prior year was lower than the current year due primarily
to the recognition of the alternative minimum tax credit in the
prior year. The Company's effective rate of 31.2% and 36.2% for
the three months ended November 30, 1997 and the nine months
ended November 30, 1997, respectively, is lower than the
statutory rate due primarily to nontaxable amortization income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from seasonal working
capital requirements, capital expenditures, interest and
principal payment obligations, and acquisitions. The Company has
historically met its liquidity and capital investment needs with
internally generated funds and borrowings under its Credit
Facilities. For the nine months ended November 30, 1997, cash
from operating activities was $23.3 million compared to cash from
operating activities of $23.5 million for the nine months ended
November 30, 1996. In early 1996, the Company sold a substantial
portion of its accounts receivable under the Securitization
Program, which has decreased cash flows from operating activities
in the current period. Net cash used in investing activities was
$22.8 million for the nine months ended November 30, 1997 as
compared to $28.8 million for the nine months ended November 30,
1996. In the nine months ended November 30, 1997, the Company
purchased the HVAC operations and related assets of Bellows-
Evans, Inc., Trigg Supply, Inc., Heating and Cooling
Distributors, Inc., Saez Refrigeration, Inc., Superior Supply
Company, and General Heating and Cooling for an aggregate cash
price of $20.6 million as compared to $27.3 million for the
acquisitions of Chase Supply Company and Sid Harvey Industries in
the prior year. Net cash used in financing activities was
$496,000 for the nine months ended November 30, 1997, while such
activities provided $5.2 million in the nine months ended
November 30, 1996.
On June 4, 1997, the Company completed the IPO. A total of
4,115,441 shares of Class A Common Stock were sold at $14 per
share, including 536,797 shares sold pursuant to the underwriters
overallotment option and 578,644 shares sold by certain selling
shareholders. The Company did not receive any of the proceeds
from the sale of shares of Class A Common Stock by the selling
shareholders. The net proceeds to the Company were approximately
$45.1 million and were used to repay $11.1 million of outstanding
indebtedness to certain members and affiliates of a group of
investors in the Company, to repay approximately $33.1 million of
the outstanding balance of the Company's Working Capital
Facility, and to repurchase 206,847 shares of Common Stock from
certain shareholders, including members of the aforementioned
investor group, for an aggregate purchase price of approximately
$1.2 million.
12<PAGE>
The Company's working capital increased to $42.9 million at
November 30, 1997 from $34.2 million at February 28, 1997.
At November 30, 1997, the Company had senior borrowings of
$46.7 million under its $100.0 million Credit Facilities, of
which $42.3 million was unused and available. The Company's
senior indebtedness consists of $3.2 million under the Working
Capital Facility and $43.5 million under the Securitization
Program (collectively, the "Credit Facilities"). The
Securitization Program is an off balance sheet arrangement that
provides for the transfer and sale of accounts receivable to a
special purpose corporation. The weighted average interest rate
on the Credit Facilities at November 30, 1997 was 7.3%. This
rate fluctuates with the commercial paper and LIBOR rates. The
Credit Facilities expire in November 2001 and have no principal
payment requirements prior to that date. The Company repaid a
portion of the Working Capital Facility with the net proceeds of
the IPO.
The Company's capital expenditures, excluding acquisitions,
for the nine months ended November 30, 1997, were $2.3 million as
compared to $1.5 million for the previous year. Such capital
expenditures were primarily for branch and distribution center
leasehold improvements, equipment, and computer equipment and
software.
Management believes that the Company has adequate resources
and liquidity to meet its borrowing obligations, fund all
required capital expenditures, and pursue its business strategy
for existing operations through the end of this fiscal year.
However, the Company will require additional funding in order to
pursue significant acquisition opportunities. Future
acquisitions may be financed by bank borrowings, public
offerings, or private placements of equity or debt securities or
a combination of the foregoing. Such financings may require the
consent of the Company's existing lenders.
SEASONALITY
The sale of products by the Company is seasonal. Sales
generally increase during the warmer months beginning in April
and peak in the months of June, July, and August.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the Condensed Consolidated Financial
Statements (Unaudited) contained in Part I of this Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Historical Net Income Per Share for the
Quarters Ended November 30, 1997 and 1996
11.2 Computation of Supplemental Historical Net Income Per
Share
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PAMECO CORPORATION
--------------------------
(Registrant)
By: /s/ THEODORE R. KALLGREN
--------------------------
Theodore R. Kallgren
Chief Financial Officer
January 14, 1998 (Mr. Kallgren has been duly
authorized to sign on behalf of the
registrant)
15
<PAGE>
Exhibit Index
Exhibit No. Exhibit
----------- -------
11.1 Computation of Historical Net Income Per Share for the
Three Months and Nine Months Ended November 30, 1997
and 1996
11.2 Computation of Supplemental Historical Net Income Per
Share
27. Financial Data Schedule (for SEC use only)
EXHIBIT 11.1
PAMECO CORPORATION
COMPUTATION OF HISTORICAL NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
-------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Weighted average common stock and common stock
equivalents outstanding during the period 8,769 6,030 7,510 6,177
Effect of common stock equivalents issued
subsequent to March 26, 1996, computed in
accordance with the treasury stock method as
required by the SEC <F1> 330 348 330 348
------ ------ ------ ------
Total 9,099 6,378 7,840 6,525
====== ====== ====== ======
Net income/(loss) applicable to common $1,199 $ (59) $8,188 $6,679
stockholders ====== ====== ====== ======
Net income/(loss) per share $ 0.13 $(0.01) $ 1.04 $ 1.02
====== ====== ====== ======
<FN>
<F1> Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock equivalents issued at prices below the
Initial Public Offering price per share of $14 ("cheap stock") during
the twelve month period immediately preceding the initial filing date
of the Company's Registration Statement for its Initial Public
Offering have been included as outstanding for all periods presented.
</FN>
</TABLE>
17
EXHIBIT 11.2
PAMECO CORPORATION
COMPUTATION OF HISTORICAL NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------------------------------
1997 1997
---- ----
<S> <C> <C>
Primary:
Weighted average common stock and common stock
equivalents outstanding during the period 8,769 8,684
Effect of common stock equivalents issued
subsequent to March 26, 1996, computed in
accordance with the treasury stock method as
required by the SEC <F1> 330 330
------ ------
Total 9,099 9,014
====== ======
Net Income $1,119 $8,188
====== ======
Plus: Reduction in interest expense from
repayment of long-term notes payable, net of
income taxes <F2> -- 676
Net Income $1,199 $8,864
====== ======
Net income per share $ 0.13 $ 0.98
====== ======
<FN>
<F1> Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock equivalents issued at prices below the
Initial Public Offering price per share of $14 ("cheap stock") during
the twelve month period immediately preceding the initial filing date
of the Company's Registration Statement for its Initial Public
Offering have been included as outstanding for all periods presented.
<F2> Historical supplemental net income per share reflects the number of
shares of common stock issued upon consummation of the Initial Public
Offering used to repay $44.2 million in current and long-term debt as
if the issuance had occurred at the beginning of the period (or date
of issuance of notes payable, if later) and the related reduction in
interest expense.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PAMECO CORPORATION FOR THE THREE MONTHS ENDED NOVEMBER
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001036283
<NAME> PAMECO CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 115
<SECURITIES> 0
<RECEIVABLES> 35,190
<ALLOWANCES> 3,661
<INVENTORY> 99,590
<CURRENT-ASSETS> 134,523
<PP&E> 11,583
<DEPRECIATION> 3,453
<TOTAL-ASSETS> 170,944
<CURRENT-LIABILITIES> 91,585
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 170,944
<SALES> 117,197
<TOTAL-REVENUES> 117,197
<CGS> 89,623
<TOTAL-COSTS> 114,385
<OTHER-EXPENSES> 896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173
<INCOME-PRETAX> 1,743
<INCOME-TAX> 544
<INCOME-CONTINUING> 1,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,199
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
