FORM 10-Q/A
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 AUGUST 31, 1998
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
PAMECO CORPORATION
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(Exact name of registrant as specified in its charter)
GEORGIA 51-0287654
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
1000 CENTER PLACE
NORCROSS, GA 30093
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(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 period 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, 4,878,284 shares and Class B
Common Stock, $.01 par value, 3,942,782 shares, both as of October 7, 1998.<PAGE>
PAMECO CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-August 31, 1998
and February 28, 1998 3
Condensed Consolidated Statements of Income-Three
Months ended August 31, 1998 and 1997 4
Condensed Consolidated Statements of Income-Six
Months ended August 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows-Six
Months ended August 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
SIGNATURES 9
2
<PAGE>
PART I. FINANCIAL INFORMATION
PAMECO CORPORATION
The financial information contained herein is identical to that in the
original filing, except for the inclusion of the pro forma data in Note 4
below concerning the acquisition of Park Heating and Air Conditioning Supply,
Inc., which was omitted from the original filing.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
August 31, February 28,
1998 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 141 $ 142
Accounts receivable, less allowance of $4,548 at August 31, 1998
and $3,992 at February 28, 1998 49,155 35,266
Inventories 146,229 123,041
Prepaid expenses and other current assets 2,226 1,554
---------- ----------
Total current assets 197,751 160,003
Property and equipment, net 15,491 11,603
Excess of cost over acquired net assets, net 43,060 25,613
Other assets 316 806
Deferred income tax assets 12,607 12,787
---------- ----------
Total assets $ 269,225 $ 210,812
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $74,024 $60,323
Accrued compensation and withholdings 4,858 5,115
Other accrued liabilities and expenses 23,553 18,112
Notes payable --- 7,700
---------- ----------
Total current liabilities 102,435 91,250
Long-term liabilities:
Debt 78,647 42,072
Warranty reserves and other 4,362 3,839
---------- ----------
Total long-term liabilities 83,009 45,911
Excess of acquired net assets over cost, net 4,387 4,999
Shareholders' equity:
Class A common stock, $.01 par value-authorized 40,000 shares;
4,767 and 4,665 shares issued and outstanding at August 31, 1998
and February 28, 1998, respectively 48 47
Class B common stock, $.01 par value-authorized 20,000 shares; 4,046
shares issued and outstanding at August 31, 1998 and February 28,
1998, respectively 41 41
Capital in excess of par value 37,642 37,092
Retained earnings 42,263 32,072
---------- ----------
79,994 69,252
Note receivable from shareholder (600) (600)
Total shareholders' equity 79,394 68,652
---------- ----------
Total liabilities and shareholders' equity $269,225 $210,812
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
Three Months Ended Six Months Ended
August 31 August 31
----------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $210,293 $146,460 $355,487 $260,195
Costs and expenses:
Cost of products sold 159,810 112,078 270,956 199,202
Warehousing, selling, and administrative expenses 35,006 23,853 64,424 47,062
-------- -------- -------- --------
194,816 135,931 335,380 246,264
-------- -------- -------- --------
Operating earnings 15,477 10,529 20,107 13,931
Other expense:
Interest expense, net (1,286) (19) (2,308) (1,238)
Discount on sale of accounts receivable and other expense (978) (912) (1,738) (1,608)
-------- -------- -------- --------
Income before income taxes 13,213 9,598 16,061 11,085
Provision for income taxes 4,905 3,624 5,870 4,096
-------- -------- -------- --------
Net income $ 8,308 $ 5,974 $ 10,191 $ 6,989
======== ======== ======== ========
Basic earnings per share $ 0.95 $ 0.70 $ 1.16 $ 1.02
======== ======== ======== ========
Basic weighted average shares outstanding 8,782 8,528 8,761 6,879
======== ======== ======== ========
Diluted earnings per share $ 0.91 $ 0.67 $ 1.11 $ 0.96
======== ======== ======== ========
Diluted weighted average shares outstanding 9,180 8,970 9,143 7,316
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4<PAGE>
<TABLE>
<CAPTION>
PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
Six Months Ended
August 31
------------------------
1998 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,191 $ 6,989
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Amortization of excess of acquired net assets over cost (612) (612)
Depreciation and other amortization 1,403 881
(Gain)loss on sale of property and equipment (19) 28
Changes in operating assets and liabilities net of assets
acquired and liabilities assumed:
Accounts receivable (6,945) (8,047)
Inventories, prepaid expenses and other assets (10,917) 16,155
Accounts payable and accrued liabilities 6,829 (3,720)
--------- ---------
Net cash (used in) provided by operating activities (70) 11,674
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment (4,132) (1,266)
Proceeds from sale of property and equipment 154 70
Business acquisitions (32,902) (18,341)
--------- ---------
Net cash used in investing activities (36,880) (19,537)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on working capital facility 400,262 278,485
Repayments on working capital facility (393,273) (296,935)
Borrowings on term loan 30,000 ---
Repayments on term loan (538) (18,600)
Payments on capital lease obligations (33) (221)
Payments on other debt (20) (14)
Issuance of common stock, net of expenses --- 45,214
Repurchase of treasury stock --- (1,207)
Proceeds from exercise of stock options 551 1,126
--------- ---------
Net cash provided by financing activities 36,949 7,848
--------- ---------
Net (decrease) in cash and cash equivalents (1) (15)
Cash and cash equivalents at beginning of period 142 145
--------- ---------
Cash and cash equivalents at end of period $ 141 $ 130
========= =========
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)
August 31, 1998
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
and six month periods ended August 31,1998 are not necessarily
indicative of the results that may be expected for the year ending
February 28, 1999. 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 Annual Report on Form 10-K for the year ended February 28,
1998.
The balance sheet at February 28, 1998 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.
<PAGE>
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
----------------------- ------------------------
1998 1997 1998 1997
------ ------ ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income applicable to common shareholders $8,308 $5,974 $10,191 $6,989
====== ====== ======= ======
Denominator:
Denominator for basic earnings per share-weighted average shares 8,782 8,528 8,761 6,879
Effect of dilutive securities:
Employee Stock Options 398 442 382 437
----- ------ ------- ------
Denominator for diluted earnings per share-adjusted weighted-
average shares and assumed conversions 9,180 8,970 9,143 7,316
====== ====== ======= ======
Basic earnings per share $ 0.95 $ 0.70 $ 1.16 $ 1.02
====== ====== ======= ======
Diluted earnings per share $ 0.91 $ 0.67 $ 1.11 $ 0.96
====== ====== ======= ======
</TABLE>
6<PAGE>
4. ACQUISITIONS
In June 1998, the Company purchased the HVAC operations and
substantially all the related assets of Park Heating and Air
Conditioning Supply Co., Inc., a seven branch distributor in the
greater Chicago area. For the year ended December 31, 1997, the
acquired business had net sales in excess of $30.0 million and derived
substantially all its net sales from the sale of HVAC products.
Pro forma Data:
The following table summarizes unaudited pro forma financial
information of the Company as if the June 1998 acquisition of Park
Heating and Air Conditioning Supply Co., Inc. had occurred as of March 1,
1997. Pro forma results have not been presented for those
acquisitions which were not significant during the periods presented.
These unaudited pro forma results of operations do not purport to
represent what the Company's actual results of operations would have
been if the acquisition had occurred on March 1, 1997, and should not
serve as a forecast of the Company's operating results for any future
periods.
The adjustments to the historical data reflect the following:
(i) interest expense assuming the Company financed the acquisition at
a rate of 7.3%; (ii) amortization of the excess of cost over acquired
net assets; (iii) income taxes on the earnings of the acquiree
adjusted to reflect the Company's effective tax rate; and (iv) the
income tax effect of such pro forma adjustments. The pro forma
adjustments are based on the available information and certain
assumptions that management believes are reasonable.
Six Months Ended Year Ended
August 31 February 28
1998 1998
----------------- -----------
Net sales $366,150 $541,767
======== ========
Net income $ 10,447 $ 8,961
======== ========
Basic earnings per share $ 1.19 $ 1.15
======== ========
Diluted earnings per share $ 1.14 $ 1.10
========= =========
5. 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 asserted that beginning on or
about August 23, 1996, it had met with Sid Harvey and had 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
<PAGE>
claimed that Pameco had 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 claimed that Sid Harvey
(i) had breached its alleged agreement to sell the Southeastern Assets
to United; (ii) had committed fraud in the inducement of that alleged
contract; (iii) had negligently misrepresented certain facts
7<PAGE>
concerning the sale of the operations and Sid Harvey's intention to
carry out the sale of those assets and (iv) was unjustly enriched by
certain information obtained from United during the United-Sid Harvey
negotiations.
Although the amended complaint did not demand specified damages,
it asserts that United should recover the "loss of its bargain,"
which United estimated 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.
Pameco and Sid Harvey asserted counterclaims against United
seeking to recover the damages they incurred in going forward with the
transaction in reliance on representations that the President of
United made to the President of Sid Harvey.
By agreement of the parties effective September 14, 1998, the
parties amicably resolved their differences, and all claims and
counterclaims asserted in the case were dismissed with prejudice and
mutual releases were exchanged. The terms of the settlement will not
have a material adverse effect on the Company's results of operations
or financial condition.
From time to time, the Company is involved in other claims and
legal proceedings which arise in the ordinary course of its business.
The Company intends to defend vigorously all such claims and does not
believe any such matters would have a material adverse effect on the
Company's results of operations or financial condition.
8
<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
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(Registrant)
By: /s/ THEODORE R. KALLGREN
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Theodore R. Kallgren
Chief Financial Officer
February 17, 1999 (Mr. Kallgren has been duly authorized
to sign on behalf of the registrant)
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