<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(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, 2000
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
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 51-0287654
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
</TABLE>
1000 Center Place, Norcross, Ga 30093
(Address of principal executive offices)
(770)-798-0700
(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 [_]
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,
3,082,330 shares as of August 31, 2000.
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<PAGE>
PAMECO CORPORATION
INDEX
<TABLE>
<C> <S>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-August 31, 2000
and February 29, 2000 3
Condensed Consolidated Statements of Operations-Three
Months ended August 31, 2000 and 1999 4
Condensed Consolidated Statements of Operations-Six
Months ended August 31, 2000 and 1999
Consolidated Statements of Cash Flows-Six
Months ended August 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
PAMECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
August 31, February 29,
2000 2000
---------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................. $ 115 $ 120
Accounts receivable, less allowance of $4,364 at
August 31, 2000 and $5,991 at February 29, 2000...... 71,933 59,769
Inventories, net...................................... 116,622 96,619
Prepaid expenses and other current assets............. 3,373 3,362
-------- --------
Total current assets................................. 192,043 159,870
Property and equipment, net............................ 13,391 15,046
Excess of cost over acquired net assets, net........... 41,948 43,221
Debt financing costs................................... 3,419 3,657
Other assets........................................... 729 735
-------- --------
Total assets......................................... $251,530 $222,529
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable...................................... $ 60,473 $ 58,116
Accrued compensation and withholdings................. 5,543 5,201
Other accrued liabilities and expenses................ 14,746 16,355
Current portion of capital lease obligations and other
debt................................................. 50 50
-------- --------
Total current liabilities............................ 80,812 79,722
Long-term liabilities:
Debt.................................................. 105,954 80,392
Warranty reserves and other........................... 4,660 4,785
-------- --------
Total long-term liabilities.......................... 110,614 85,177
Excess of acquired net assets over cost, net........... 2,614 3,245
Redeemable convertible preferred stock, $1.00 par
value; 913 and 600 shares authorized as of August 31,
2000 and February 29, 2000, respectively; 190 and 140
issued and outstanding as of August 31, 2000 and
February 29, 2000, respectively; aggregate liquidation
preference of $47,493 and $35,000 as of August 31,
2000 and February 29, 2000, respectively.............. 36,783 23,324
Warrants to purchase redeemable convertible preferred
stock................................................. 11,676 11,676
Shareholders' equity:
Class A Common stock, $.01 par value-authorized 40,000
shares; 3,082 and 1,986 shares issued and outstanding
at August 31, 2000 and February 29, 2000,
respectively......................................... 31 59
Class B Common stock, $.01 par value-authorized 20,000
shares; no shares issued or outstanding at August 31,
2000; 1,091 shares issued and outstanding at February
29, 2000............................................. 0 33
Capital in excess of par value........................ 41,439 41,351
Deferred compensation cost............................ 0 (299)
Accumulated deficit................................... (32,439) (21,720)
-------- --------
Total shareholders' equity........................... 9,031 19,385
-------- --------
Total liabilities and shareholders' equity........... $251,530 $222,529
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended August 31 August 31
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................. $141,869 $207,724 $267,283 $366,841
Costs and expenses:
Cost of products sold............... 108,521 163,740 205,204 285,655
Warehousing, selling, and
administrative expenses............ 30,831 38,884 63,086 76,010
Severance........................... -- 471 -- 471
Restructuring....................... -- 2,831 -- 2,831
Amortization of excess of cost over
acquired net assets................ 636 282 1,272 574
Amortization of excess of acquired
net assets over cost............... (315) (306) (630) (615)
-------- -------- -------- --------
139,673 205,902 268,932 364,926
-------- -------- -------- --------
Operating earnings (loss)............. 2,196 1,822 (1,649) 1,915
Other expenses:
Interest expense, net............... (2,847) (1,792) (5,083) (3,571)
Discount on sale of accounts
receivable and other expenses...... (87) (1,163) (527) (1,977)
-------- -------- -------- --------
Loss before income taxes.............. (738) (1,133) (7,259) (3,633)
Provision (benefit) for income taxes.. -- (546) -- (1,613)
-------- -------- -------- --------
Net loss.............................. $ (738) $ (587) $ (7,259) $ (2,020)
Preferred stock dividends and
accretion of redeemable convertible
preferred stock...................... (1,755) -- (3,459) --
-------- -------- -------- --------
Net loss applicable to common
shareholders......................... $ (2,493) $ (587) $(10,718) $ (2,020)
======== ======== ======== ========
Basic loss per share.................. $ (0.24) $ (0.19) $ (2.36) $ (0.66)
======== ======== ======== ========
Basic loss applicable to common
shareholders per share............... $ (0.81) $ (0.19) $ (3.48) $ (0.66)
======== ======== ======== ========
Basic weighted average shares
outstanding.......................... 3,079 3,067 3,078 3,049
======== ======== ======== ========
Diluted loss per share................ $ (0.24) $ (0.19) $ (2.36) $ (0.66)
======== ======== ======== ========
Diluted loss applicable to common
shareholders per share............... $ (0.81) $ (0.19) $ (3.48) $ (0.66)
======== ======== ======== ========
Diluted weighted average shares
outstanding.......................... 3,079 3,067 3,078 3,049
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
August 31
------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss .................................................. $ (7,259) $ (2,020)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization of excess of cost over acquired net assets... 1,272 574
Amortization of excess of acquired net assets over cost... (630) (615)
Depreciation.............................................. 1,964 1,688
Amortization of Deferred Financing Costs.................. 380 --
Loss on sale of property and equipment.................... 138 40
Amortization of deferred compensation for vested
restricted stock......................................... 299 (576)
Changes in operating assets and liabilities net of assets
acquired and liabilities assumed:
Accounts receivable..................................... (12,164) 451
Inventories, prepaid expenses and other assets.......... (20,007) 31,844
Accounts payable and accrued liabilities................ 966 (10,436)
-------- --------
Net cash (used in) provided by operating activities........ (35,041) 20,950
Cash flows from investing activities
Purchases of property and equipment........................ (459) (2,641)
Proceeds from sales of property and equipment.............. 10 23
-------- --------
Net cash used in investing activities...................... (449) (2,618)
Cash flows from financing activities
Borrowings on working capital facility..................... -- (1,852)
Repayments on term debt.................................... -- (16,624)
Payments on capital lease obligations and other debt....... -- (248)
Issuance of preferred stock................................ 10,000 --
Net borrowings on new credit agreement..................... 25,562 --
Debt issue costs paid for new debt ........................ (142) --
Proceeds from exercise of stock options and warrants....... -- 381
Contributions from 401(K) and Stock Purchase Plan.......... 65 --
-------- --------
Net cash provided by (used in) financing activities........ 35,485 (18,343)
-------- --------
Net decrease in cash and cash equivalents.................. (5) (11)
Cash and cash equivalents at beginning of period........... 120 148
-------- --------
Cash and cash equivalents at end of period................. $ 115 $ 137
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
August 31, 2000
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 August 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending February 28, 2001. 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 29,
2000.
The balance sheet at February 29, 2000, 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. 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,
-------------------- ------------------
2000 1999 2000 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net loss........................... (738) (587) (7,259) (2,020)
========= ======== ======== ========
Net loss applicable to common
shareholders...................... $ (2,493) (587) 10,718 (2,020)
========= ======== ======== ========
Denominator:
Denominator for basic earnings (loss)
per share-weighted average shares... 3,079 3,067 3,078 3,049
Effect of dilutive securities:
Stock Options...................... -- -- -- --
--------- -------- -------- --------
Denominator for diluted earnings
(loss) per share-adjusted weighted-
average shares and assumed
conversions......................... 3,079 3,067 3,078 3,049
========= ======== ======== ========
Basic loss per share................. $ (0.24) $ (0.19) $ (2.36) $ (0.66)
========= ======== ======== ========
Basic loss applicable to common
shareholders per share.............. $ (0.81) $ (0.19) $ (3.48) $ (0.66)
========= ======== ======== ========
Diluted loss per share............... $ (0.24) $ (0.19) $ (2.36) $ (0.66)
========= ======== ======== ========
Diluted loss applicable to common
shareholders per share.............. $ (0.81) $ (0.19) $ (3.48) $ (0.66)
========= ======== ======== ========
</TABLE>
6
<PAGE>
4. CONTINGENCIES
From time to time, the Company is involved in 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.
5. RESTRUCTURING
During the years ended February 28, 1999 and February 29, 2000, the Company
performed extensive review of its unprofitable branches. The Company
determined that 56 branches should be closed based on either of the following
criteria: (1) the branch location was already in a market sufficiently
serviced by a Pameco branch or (2) the branch location was in an area with
limited demand. From the period of September 1, 1999 to August 31, 2000, the
Company closed 43 of these 56 branches. Since the Company had previously
closed 11 branches identified in the restructuring quarter ended August 31,
1999, it has now closed 54 of the branches identified in the restructuring
charges. By closing or consolidating branches in these markets, the Company
seeks to reduce its inventory levels and operating expenses. The Company does
not expect the demographics of these markets to change significantly enough
within the next several years for these branches to become profitable.
In the connection with the closure and the consolidation of these 56
branches, the Company recorded $4.5 million of restructuring charges. The
charges consisted of the following components: (1) lease and other facility
expenses of $2.3 million; (2) the write off of $584,000 of fixed assets no
longer in use; (3) severance payments of $187,000; and (4) an asset impairment
charge of $1.4 million for the write-off of goodwill associated with certain
branches to be closed.
<TABLE>
<CAPTION>
Reserve Charged
Cash/ Balance to Reserve Balance
Description Non-Cash May 31, 2000 Accrual August 31, 2000
----------- -------- ------------ ------- ---------------
<S> <C> <C> <C> <C>
Branches to be closed
Leases........................... Cash $(1,304) $28 $(1,276)
Severance........................ Cash (141) -- (141)
Fixed Asset write-off............ Non-Cash (216) -- (216)
Utilities and Other.............. Cash (221) 3 (218)
------- --- -------
Total............................. $(1,882) $31 $(1,851)
------- --- -------
</TABLE>
The majority of the cash expenditures related to branch closures, excluding
lease commitments, were completed by February 2000. The Company will continue
to pay on certain lease commitments through 2001.
6. SHARE CAPITAL
On June 21, 2000, the shareholders approved a 3 to 1 reverse stock split.
All amounts disclosed in these financial statements have been restated to give
effect to the reverse stock split.
On August 28, 2000, the Company authorized 312,500 shares of the new
redeemable convertible Preferred Class B Stock. Respectively, 50,000 shares of
Series B preferred stock were issued and outstanding at August 31, 2000. The
new preferred stock has a par value of $1.00.
7. NEW YORK STOCK EXCHANGE COMPLIANCE
For the quarter ended August 31, 2000, the New York Stock Exchange advised
that the Company no longer meets the New York Stock Exchange's new advised
standards. The new standards would require $50 million in stockholder's equity
and $50 million in market capitalization, and total market capitalization of
not less than $15 million. The Company has submitted a plan to the Listings
and Compliance Committee of the Exchange in connection with discussions for
achieving compliance with the new standards. The Company has issued
7
<PAGE>
redeemable convertible preferred stock totaling $47.5 million of which $2.5
million was issued on September 21, 2000, since the financial restructuring
that occurred on February 29, 2000. These securities are not included in
stockholders equity for the purpose of determining market capitalization under
the revised listing standards.
8. FUNDING
On August 28, 2000, the Company obtained additional funding from private
investors in an aggregate of $10 million. The private investors agreed to
invest an additional $2.5 million within 30 days, in exchange for shares of
the Company's Class B preferred stock pursuant to the existing February 18,
2000 Securities Purchase Agreement. The preferred stock is convertible into
shares of the Company's common stock at a conversion price per share of $3.38
and will have the right to vote with the common stock on an as-converted
basis.
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 income data to net revenue for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.......................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of products sold............. 76.5 78.8 76.8 77.9
----- ----- ----- -----
Gross profit....................... 23.5 21.2 23.2 22.1
Warehousing, selling, and
administrative expenses.......... 21.7 18.7 23.6 20.7
Severance......................... -- 0.2 -- 0.1
Restructuring..................... -- 1.4 -- 0.8
Amortization of excess of cost
over acquired net assets......... 0.4 0.1 0.5 0.2
Amortization of excess of acquired
net assets over cost............. (0.2) (0.1) (0.2) (0.2)
----- ----- ----- -----
Operating earnings................. 1.5 0.9 (0.6) 0.5
Other expense:
Interest expense, net............. 2.0 0.9 1.9 1.0
Other expense..................... 0.1 0.6 0.2 0.5
----- ----- ----- -----
Loss before income taxes........... (0.5) (0.5) (2.7) (1.0)
Benefit for income taxes........... -- (0.1) -- (0.0)
----- ----- ----- -----
Net loss........................... (0.5)% (0.4)% (2.7)% (1.0)%
===== ===== ===== =====
</TABLE>
Results Of Operations
Quarter Ended August 31, 2000 vs Quarter Ended August 31, 1999
Net sales for the quarter ended August 31, 2000 decreased 32% to $141.8
million from $207.7 million for the same period in 1999. Second quarter same
store daily sales decreased 25%. Net sales were adversely impacted by supply
chain issues and mild weather in many of the company's marketing areas.
Gross profit for the quarter ended August 31, 2000, decreased 24.3% to $33.3
million from $44.0 million for the same period in 1999. The gross profit
percentage for the quarter ended August 31, 2000 increased to 23.5% from 21.2%
for the same period in 1999.
Warehousing, selling, and administrative expenses during the quarter
decreased 20.6% to $30.8 million from $38.9 million for the same period in
1999. As a result of the aforementioned closure of branches, non-personnel
8
<PAGE>
related warehousing, selling, and administrative expenses were reduced by $8.0
million as compared to the same period in the prior year.
Interest expense, net for the second quarter ended August 31, 2000 increased
to $2.8 million from $1.8 million for the same period in 1999, primarily due
to higher interest rates and higher outstanding balances. Approximately $64.5
million of accounts receivable and debt are not reflected on the Company's
balance sheet at August 31, 1999, because of the accounts receivable
securitization borrowing (the "Securitization Program") was recorded as a sale
of assets. The discount on the sale of accounts receivable of $1.1 million for
the quarter ended August 31, 1999 was recorded as "Other Expense" on the
statements of operations. The Securitization Program was terminated on
February 29, 2000.
On August 28, 2000, the Company obtained additional funding from private
investors in an aggregate of $10 million. The private investors also agreed to
invest an additional $2.5 million within 30 days, in exchange for shares of
the Company's Class B preferred stock pursuant to the existing February 18,
2000 Securities Purchase Agreement. The preferred stock is convertible into
shares of the Company's common stock at a conversion price per share of $3.38
and will have the right to vote with the common stock on as-converted basis.
During the quarter ending August 31, 2000, the New York Stock Exchange
advised that the Company no longer meets the New York Stock Exchange's new
advised standards. The new standards would require $50 million in
shareholder's equity and $50 million in market capitalization, and total
market capitalization of not less than $15 million. The Company has issued
redeemable convertible preferred stock totaling $45 million since the
financial restructuring that occurred on February 29, 2000. These securities
are not included in stockholders' equity for the purpose of determining market
capitalization under the revised listing standards.
During the years ended February 28, 1999 and February 29, 2000, the Company
performed extensive review of its unprofitable branches. The Company
determined that 56 branches should be closed based on either of the following
criteria: (1) the branch location was already in a market sufficiently
serviced by a Pameco branch or (2) the branch location was in an era with
limited demand. From the period of September 1, 1999 to August 31, 2000, the
Company closed 43 of these 56 branches. Since the Company had previously
closed 11 branches identified in the restructuring quarter ended August 31,
1999, it has now closed 54 of the branches identified in the restructuring
charges. By closing or consolidating branches in these markets, the Company
seeks to reduce its inventory levels and operating expenses. The Company does
not expect the demographics of these markets to change significantly enough
within the next several years for these branches to become profitable.
In the connection with the closure and the consolidation of these 56
branches, the Company recorded $4.5 million of restructuring charges. The
charges consisted of the following components: (1) lease and other facility
expenses of $2.3 million; (2) the write off of $584,000 of fixed assets no
longer in use; (3) severance payments of $187,000; and (4) an asset impairment
charge of $1.4 million for the write-off of goodwill associated with certain
branches to be closed.
Six Months Ended August 31, 2000 and August 31, 1999
Net sales for the six months ended August 31, 2000, decreased 27.1% to
$267.3 million from $366.8 million for the same period in 1999. Second quarter
same store daily sales decreased 20.3%. Net sales and same store sales were
negatively impacted by inadequate levels of inventory at the start of the
quarter and the ongoing effects of the restructuring effort.
Gross profit for the six months ended August 31, 2000 decreased 23.6% to
$62.0 million from $81.2 million for the same period in 1999. The decline in
gross profit is directly related to the decline in net sales explained above.
The gross profit percentage for the six months ended August 31, 2000 increased
to 23.2% from 22.1% for the same period in 1999.
9
<PAGE>
Warehousing, selling, and administrative expenses for the six months ended
August 31, 2000 decreased 17.1% to $63.0 million from $76.0 million for the
same period in 1999. As a result of the aforementioned closure of branches,
non-personnel related warehousing, selling and administrative expenses were
reduced by $8.0 million as compared to the same period in the prior year.
Interest expense, net for the six months ended August 31, 2000 increased
$1.5 million to $5.1 million from $3.6 million for the same period in 1999,
primarily due to higher interest rates and higher balances. Approximately
$64.5 million of accounts receivable and debt are not reflected on the
Company's balance sheet at August 31, 1999, because of the accounts receivable
securitization borrowing (the "Securitization Program") was recorded as a sale
of assets. The discount on the sale of accounts receivable of $1.9 million for
the six months ended August 31, 1999 was recorded as "Other Expense" on the
statements of operations. The Securitization Program was terminated on
February 29, 2000.
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 (as defined below). For the six months ended
August 31, 2000, cash used in operating activities was $35.0 million as
compared to $20.9 million provided by operating activities for the six months
ended August 31, 1999. Additionally, process improvements implemented by the
Company have resulted in the accounts receivable level remaining constant
during a period of increased sales. Net cash used in investing activities was
$448,000 for the six months ended August 31, 2000 as compared to $2.6 million
for the six months ended August 31, 1999. Net cash provided by financing
activities was $35.4 million for the six months ended August 31, 2000, while
such activities used $18.3 million in the six months ended August 31, 1999.
The Company's working capital increased to $111.2 million at August 31, 2000
from $80.1 million at February 29, 2000.
The Company's capital expenditures, excluding acquisitions, for the six
months ended August 31, 1999, were $0.5 million as compared to $2.6 million
for the previous year. Such capital expenditures were primarily for branch and
distribution center leasehold improvements, equipment, computer equipment and
supply chain software.
On February 17, 2000, the Company entered into an agreement with a new
primary lender and various participating lenders (the "Lenders") to obtain
financing under a senior credit facility amounting to an aggregate of $130
million (the "New Credit Agreement"). The New Credit Agreement provides for
(a) a revolving line of credit of 130.0 million (the "New Revolver Facility"),
and (b) a subfacility of the Revolver Facility providing for the issuance of
letters of credit (the "LC Facility"), not to exceed $15 million (such amount
to be calculated as part of, and not in additions to, the aggregate limit of
the Credit Agreement).
At August 31, 2000, the Company had borrowings of $84.5 million outstanding
under the New Revolver Facility. These borrowings are due February 17, 2005.
Interest is based on LIBOR plus 2.75% for specified loan amounts and the prime
rate plus .75% for borrowings in excess of specified loan amounts. The
effective borrowing rate at August 31, 2000 was 9.87%.
At August 31, 2000, debt includes $20.0 million subordinated debt agreement
(the "Subdebt Facility") entered into on February 18, 2000, in connection with
the $130.0 million New Credit Agreement. (The Subdebt Facility bears ("Paid in
Kind" interest)). Principal plus Paid in Kind interest of $2.0 million is due
at March 31, 2003 and 2004, respectively, and the remaining balance is due on
March 31, 2005.
10
<PAGE>
In connection with the $20.0 million Subdebt Facility and effective February
18, 2000, the Company entered into future inventory purchase agreements with
the owners of such Subdebt Facility. These agreements require the Company to
purchase minimum percentages of its annual inventory demand for certain
products over the next five years from specified suppliers. Failure to meet
these minimum percentages would result in penalties and default on the
associated $20.0 million Subdebt Facility. Minimum commitments under these
purchase agreements for the next five fiscal years are estimated to be: 2001-
20.1 million; 2003-$2.7 million; 2004-$26.1 million; and 2005 and thereafter
$27.2 million. For the year ended February 29, 2000, the Company purchased
$200.2 million of inventory from these specified suppliers.
The New Credit Agreement and the Subdebt Facility require compliance with
specific levels of net worth, earnings before interest, taxes, depreciation,
and amortization ("EBITDA"), and a specified fixed charges coverage ratio. The
negative covenants include various limitations on indebtedness, liens,
fundamentals changes, dividends, and investments. At May 31, 2000, the Company
complied with all covenants. The Company has granted a security interest to
the Lenders for substantially all the assets of the Company, including the
accounts receivable, inventory, and equipment, as collateral for the debt.
On May 18, 2000, the Company entered into an amendment and waiver to the New
Credit Agreement. In general, the amendment waived the Company's violation of
the consolidated net worth covenant, modified the definition of consolidated
net worth, and reduced the levels of consolidated net worth required for
future periods. The covenant violation was primarily attributable to the
establishment of a non-cash valuation allowance for deferred tax assets. In
February 2000, in connection with the significant loss incurred by the Company
during the fourth quarter of the year, management concluded that realization
of its net deferred tax assets was no longer likely and, accordingly,
increased the valuation allowance to fully provide for such assets. Although
the asset was fully reserved on the Company's balance sheet, the benefit
remains available through an increase in the Company's tax loss carry forward
provision. As such, the related reduction in the net worth has no cash impact
on the Company. In addition, the Subdebt Facility contains provisions whereby
amendments to the New Credit Agreement are automatically incorporated into the
Subdebt Facility.
On August 28, 2000, the Company entered into a fourth amendment to the New
Credit Agreement. In general, the amendment reduces the revolving line of
credit limit to $117.5 million and further modified certain debt covenant
levels.
On August 28, 2000, the Company obtained additional funding from private
investors in an aggregate of $10 million. The private investors agreed to
invest an additional $2.5 million within 30 days, in exchange for shares of a
new series of the Company's preferred stock pursuant to the existing February
18, 2000 Securities Purchase Agreement. The preferred stock is convertible
into shares of the Company's common stock at a conversion price per share of
$3.38 and will have the right to vote with the common stock on an as-converted
basis.
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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The foregoing Section contains various "forward-looking statements" which
represent the Company's expectations or beliefs concerning future events. The
Company cautions that a number of important factors could, individually or in
the aggregate, cause actual results to differ materially from those included
in the forward-looking statements, including the following: consumer spending
trends, weather conditions, increased competition, and general economic
conditions.
11
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 to the Condensed Consolidated Financial Statements (Unaudited)
contained in Part I of this Report.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting on July 21, 2000
a. The following individuals were elected to the Company's Board of
Directors.
<TABLE>
<CAPTION>
For Withhold
--------- --------
<S> <C> <C>
Class A
W. Michael Clevy.......................................... 6,129,694 816,708
Earl Dolive............................................... 6,133,248 813,154
Class B
James R. Balkom, Jr....................................... 1,778,478 --
Edmund J. Feeley.......................................... 1,778,478 --
Michael Ira Klein......................................... 1,778,478 --
Angus C. Littlejohn, Jr................................... 1,778,478 --
Dixon R. Walker........................................... 1,778,478 --
Harry F. Weyher III....................................... 1,778,478 --
Willem F.P. de Vogel...................................... 1,778,478 --
</TABLE>
b. The shareholders approved the convertibility features and voting rights of
the Series A Preferred Stock issued by the Company, and shares of additional
preferred stock that may be issued by the Company in the future, pursuant to
the terms of the Company's February 2000 recapitalization.
Voting For 22,663,268 Voting Against 665,005 Abstaining 185,530
c. The shareholders approved and adopted an Agreement and Plan of Merger for
the reincorporation of the Company in the State of Delaware.
Voting For 22,674,410 Voting Against 838,244 Abstaining 1,149
d. The shareholders approved and adopted the Certificate of Incorporation of
the Delaware corporation that survives the reincorporation of the Company in
Delaware eliminating the Company's Class B Common Stock and decreasing the
Company's authorized Class A Common Stock from 40,000,000 to 20,000,000 shares.
Voting For 22,517,025 Voting Against 834,559 Abstaining 162,219
e. The shareholders approved the 1-for-3 reverse stock split of the Company's
outstanding common stock to be effected pursuant to the Agreement and Plan of
Merger involving the reincorporation of the Company in the State of Delaware.
Voting For 22,655,333 Voting Against 857,405 Abstaining 1,065
f. The shareholders ratified and approved the director and officer
indemnification agreements.
Voting For 24,655,249 Voting Against 66,962 Abstaining 8,971
12
<PAGE>
g. The shareholders approved an amendment to the Company's 1999 Stock Award
Plan to increase the number of shares reserved for issuance upon exercise of
options granted under it and to increase the number of shares that may be
subject to options granted under it to a single individual in a single year.
Voting For 21,952,237 Voting Against 1,179,233 Abstaining 382,333
Item 5. Other Information
For the quarter ending August 31, 2000, the New York Stock Exchange advised
that Company no longer meets the New York Stock Exchange's new advised
standards. The new standards would require $50 million in stockholder's equity
and $50 million in market capitalization, and total market capitalization of
not less than $1.5 million. The Company has submitted a plan to the Listings
and Compliance Committee of the Exchange in connection with discussions for
achieving compliance with the new standards. The Company has issued
convertible preferred stock totaling $47.5 million since the financial
restructuring that occurred on February 29, 2000. These securities are not
included in stockholders equity for the purpose of determining market
capitalization under the revised listing standards.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
1. On July 22, 2000, the Company filed a Form 8-K with the Commission to
announce the filing of the reincorporation of the Company in the State of
Delaware.
2. On August 28, 2000, the Company filed a Form 8-K with the Commission to
announce additional investments in the Company by Littlejohn Fund II, L.P.
and Quilvest American Equity Ltd.
13
<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/ Robert J. Davis
___________________________________
Robert J. Davis
Chief Financial Officer
October 15, 2000 (Mr. Davis has been duly authorized
to sign on behalf of the registrant)
14
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
27. Financial Data Schedule (for SEC use only)
</TABLE>
15
