<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 November 30, 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>
<S> <C>
Delaware 51-0287654
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
</TABLE>
651 Corporate Circle
Suite 200A
Golden, Co. 80401
(Address of principal executive offices)
(303) 568-1200
(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,
3,091,111 shares as of January 5, 2001.
--------------------------------------------------------------------------------
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<PAGE>
PAMECO CORPORATION
INDEX
<TABLE>
<S> <C>
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-November 30, 2000 and
February 29, 2000................................................ 3
Condensed Consolidated Statements of Operations-Three Months ended
November 30, 2000 and 1999....................................... 4
Condensed Consolidated Statements of Operations-Nine Months ended
November 30, 2000 and 1999....................................... 4
Consolidated Statements of Cash Flows-Nine Months ended
November 30, 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..................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 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>
November 30, February 29,
2000 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 111 $ 120
Accounts receivable, less allowance of $4,289 at
November 30, 2000 and $5,991 at February 29, 2000.. 51,257 59,769
Inventories, net.................................... 96,712 96,619
Prepaid expenses and other current assets........... 2,092 3,362
-------- --------
Total current assets............................... 150,172 159,870
Property and equipment, net.......................... 12,576 15,046
Excess of cost over acquired net assets, net......... 41,313 43,221
Debt financing costs................................. 3,229 3,657
Other assets......................................... 985 735
-------- --------
Total assets....................................... $208,275 $222,529
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 40,259 $ 58,116
Accrued compensation and withholdings............... 5,910 5,201
Other accrued liabilities and expenses.............. 15,422 16,355
Current portion of capital lease obligations and
other debt......................................... 50 50
-------- --------
Total current liabilities.......................... 61,641 79,722
Long-term liabilities:
Debt................................................ 94,773 80,392
Warranty reserves, etc.............................. 4,542 4,785
-------- --------
Total long-term liabilities........................ 99,315 85,177
Excess of acquired net assets over cost, net......... 2,299 3,245
Redeemable convertible preferred stock, $1.00 par
value; 600 shares authorized and 140 issued and
outstanding as of February 29, 2000, with an
aggregate liquidation preference of $35,000 as of
February 29, 2000................................... -- 23,324
Warrants to purchase redeemable convertible preferred
stock............................................... -- 11,676
Shareholders' equity:
Convertible preferred stock, $1.00 par value; 913
shares authorized and 203 issued and outstanding as
of November 30, 2000................................ 40,413 --
Warrants to purchase convertible preferred stock..... 11,676 --
Class A Common stock, $.01 par value-authorized
40,000 shares; 3,091 and 1,986 shares issued and
outstanding at November 30, 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
November 30, 2000; 1,091 shares issued and
outstanding at February 29, 2000................... -- 33
Capital in excess of par value...................... 41,438 41,312
Deferred compensation cost.......................... -- (299)
Accumulated deficit................................. (48,538) (21,720)
-------- --------
Total shareholders' equity......................... 45,020 19,385
-------- --------
Total liabilities and shareholders' equity......... $208,275 $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
Ended Nine Months Ended
November 30, November 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................. $ 97,390 $135,991 $364,672 $502,832
Costs and expenses:
Cost of products sold................ 74,050 103,163 279,254 388,818
Warehousing, selling, and
administrative expenses............. 30,718 37,382 93,928 113,392
Severance............................ -- 35 -- 633
Branch restructuring................. (959) 881 (959) 3,585
Amortization of excess of cost over
acquired net assets................. 636 281 1,908 855
Amortization of excess of acquired
net assets over cost................ (315) (303) (946) (918)
Distribution center closure.......... 5,309 -- 5,309 --
-------- -------- -------- --------
109,439 141,439 378,494 506,365
-------- -------- -------- --------
Operating loss........................ (12,049) (5,448) (13,822) (3,533)
Other expenses:
Interest expense, net................ (2,656) (1,861) (7,739) (5,431)
Discount on sale of accounts
receivable and other expenses....... (265) (962) (668) (2,904)
-------- -------- -------- --------
Loss before income taxes.............. (14,970) (8,271) (22,229) (11,904)
Benefit for income taxes.............. -- (3,129) -- (4,742)
-------- -------- -------- --------
Net loss.............................. (14,970) (5,142) (22,229) (7,162)
Preferred stock dividends and
accretion of redeemable convertible
preferred stock...................... (1,130) -- (4,589) --
-------- -------- -------- --------
Net loss applicable to common
shareholders......................... $(16,100) $ (5,142) $(26,818) $ (7,162)
======== ======== ======== ========
Basic loss per share.................. $ (4.85) $ (1.67) $ (7.21) $ (2.34)
======== ======== ======== ========
Basic loss applicable to common
shareholders per share............... $ (5.21) $ (1.67) $ (8.70) $ (2.34)
======== ======== ======== ========
Basic weighted average shares
outstanding.......................... 3,089 3,072 3,082 3,057
======== ======== ======== ========
Diluted loss per share................ $ (4.85) $ (1.67) $ (7.21) $ (2.34)
======== ======== ======== ========
Diluted loss applicable to common
shareholders per share............... $ (5.21) $ (1.67) $ (8.70) $ (2.34)
======== ======== ======== ========
Diluted weighted average shares
outstanding.......................... 3,089 3,072 3,082 3,057
======== ======== ======== ========
</TABLE>
Weighted average shares outstanding and basic and diluted loss per share
amounts for the three months and nine months ended November 30, 2000 have been
restated to effect the one-for-three reverse stock split effective on June 21,
2000.
See notes to condensed consolidated financial statements.
4
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss .................................................. $(22,229) $ (7,162)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization of excess of cost over acquired net assets... 1,908 855
Amortization of excess of acquired net assets over cost... (946) (918)
Depreciation.............................................. 2,941 2,741
Amortization of debt financing costs...................... 570 --
Loss on sale of property and equipment.................... 202 52
Changes in operating assets and liabilities net of assets
acquired and liabilities assumed:
Accounts receivable...................................... 8,811 2,143
Inventories, prepaid expenses and other assets........... 927 43,158
Accounts payable, accrued liabilities, and warranty
reserves................................................ (18,324) (11,774)
-------- --------
Net cash (used in) provided by operating activities........ (26,140) 29,095
Cash flows from investing activities
Purchases of property and equipment........................ (693) (3,409)
Proceeds from sales of property and equipment.............. 20 23
-------- --------
Net cash used in investing activities...................... (673) (3,386)
Cash flows from financing activities
Borrowings on working capital facility..................... -- 3,724
Repayments on term debt.................................... -- (29,756)
Payments on capital lease obligations and other debt....... -- (248)
Issuance of preferred stock................................ 12,500 --
Net borrowings on new credit agreement..................... 14,381 --
Debt issue costs paid for new debt......................... (142) --
Proceeds from exercise of stock options and contributions
from stock purchase plan.................................. 65 551
-------- --------
Net cash provided by (used in) financing activities........ 26,804 (25,729)
-------- --------
Net decrease in cash and cash equivalents.................. (9) (20)
Cash and cash equivalents at beginning of period........... 120 148
-------- --------
Cash and cash equivalents at end of period................. $ 111 $ 128
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 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- and
nine-month period ended November 30, 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.
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 Nine Months Ended
November 30, November 30,
-------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Numerator:
Net loss............................ $ (14,970) $ (5,142) $ (22,229) $ (7,162)
========= ======== ========= ========
Net loss applicable to common
shareholders....................... $ (16,100) $ (5,142) $ (26,818) $ (7,162)
========= ======== ========= ========
Denominator:
Denominator for basic loss per
share-weighted average shares...... 3,089 3,072 3,082 3,072
Effect of dilutive securities:
Stock options....................... -- -- -- --
--------- -------- --------- --------
Denominator for diluted loss per
share-adjusted weighted-average
shares and assumed conversions...... 3,089 3,072 3,082 3,057
========= ======== ========= ========
Basic loss per share................. $ (4.85) $ (1.67) $ (7.21) $ (2.34)
========= ======== ========= ========
Basic loss applicable to common
shareholders per share.............. $ (5.21) $ (1.67) $ (8.70) $ (2.34)
========= ======== ========= ========
Diluted loss per share............... $ (4.85) $ (1.67) $ (7.21) $ (2.34)
========= ======== ========= ========
Diluted loss applicable to common
shareholders per share.............. $ (5.21) $ (1.67) $ (8.70) $ (2.34)
========= ======== ========= ========
</TABLE>
Weighted average shares outstanding and basic and diluted loss per share
amounts for the three months and nine months ended November 30, 2000 have been
restated to effect the one-for-three reverse stock split effective on June 21,
2000.
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. BRANCH RESTRUCTURING
Throughout the years ended February 28, 1999 and February 29, 2000, the
Company performed extensive reviews of its unprofitable branches. The Company
determined that 55 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. As of November 30, 2000, the Company has closed 53 of these 55
branches. 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 55
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.
During the three-month period ended November 30, 2000, the Company reversed
reserves of $959,000 representing favorable results of lease termination
negotiations. The reserve balance at November 30, 2000 was approximately
$846,000. The Company will continue to pay on certain lease commitments through
2003.
6. DISTRIBUTION CENTER CLOSURE
During the second quarter of the current fiscal year the Company began an
extensive analysis of the distribution infrastructure of the Company. The
Company determined that the existing centralized distribution structure was
inadequate to serve the branch network efficiently and began testing alternate
approaches. Starting in the third quarter, the Company began transitioning to a
decentralized operating structure consisting of 32 districts with each district
relying on direct vendor supply. In the third quarter the Company concluded
that the decentralized structure was viable and ceased operations at the
Company's eight distribution centers. As of November 30, 2000, the Company has
terminated one of the facility leases, and the Company is actively pursuing
sublease opportunities and lease terminations on the remaining seven
facilities.
In connection with the closure of these eight distribution centers, the
Company recorded a charge of $5.3 million. The charge consists of the following
items: (1) lease and other facility expenses of $3.4 million; (2) the write off
of $885,000 of fixed assets no longer in use; and (3) $1.0 million of other
items, primarily related to the termination of logistic service contracts.
Payments on lease and facility expenses through November 30, 2000 have not been
significant.
7
<PAGE>
7. SHARE CAPITAL
On June 21, 2000, the shareholders approved a one-for-three 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 redeemable
Series B convertible preferred stock. The Company issued 50,000 shares of
Series B preferred stock on August 28, 2000 and 12,500 shares of Series B
preferred stock on September 21, 2000.
On October 17, 2000, the holders of the outstanding Series A and Series B
preferred shares agreed to waive certain redemption rights with respect to the
Series A and Series B preferred shares. As a result of such waiver, the Company
reclassified the value of the preferred stock investment from mezzanine equity
to shareholders' equity. Additionally, it is no longer necessary that the value
of such shares be accreted each month to an ultimate redemption value.
8. SUBSEQUENT EVENTS
On December 2, 2000, the Company entered into a fifth amendment to the New
Credit Agreement. In general, the amendment modified certain debt covenant
levels.
On December 2, 2000, the Company authorized 312,500 shares of convertible
Series C preferred stock with a par value of $1.00 per share. Also on December
2, 2000, 62,500 shares of the Series C preferred stock were issued in exchange
for $12.5 million.
On December 6, 2000, the Company received notice that the New York Stock
Exchange ("NYSE") had determined that the Company's common stock should be
delisted from the NYSE. The NYSE's action was taken in view of the fact that
the Company is below the NYSE's continued listing criteria relating to total
global market capitalization less than $50 million, total stockholders' equity
of less than $50 million and average global market capitalization over a
consecutive 30 day trading period of less than $15 million. In addition, the
plan for return to conformity with continued listing standards was not
acceptable to the Listings and Compliance Committee of the NYSE. On December
28, 2000, the Company was delisted from the NYSE, and trading of the Company's
common stock began on the NASDAQ Over the Counter Bulletin Board under the
symbol PAMC.
On January 15, 2001, the Company received an offer from Littlejohn Fund II,
L.P. and Quilvest American Equity Ltd. to acquire all of the outstanding shares
of common stock of the Company for $0.40 per common share, payable in cash.
Filed herewith as an exhibit to this Quarterly Report on Form 10-Q is the press
release of the Company announcing receipt of this offer.
8
<PAGE>
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 Nine Months Ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales.................. 100.0 % 100.0 % 100.0 % 100.0 %
Cost of products sold..... 76.0 75.9 76.6 77.3
----- ----- ----- -----
Gross profit............... 24.0 24.1 23.4 22.7
Warehousing, selling, and
administrative expenses.. 31.5 27.5 25.8 22.6
Severance................. -- -- -- 0.1
Branch restructuring...... (1.0) .6 (.3) 0.7
Amortization of excess of
cost over acquired net
assets................... 0.7 .2 0.5 0.2
Amortization of excess of
acquired net assets over
cost..................... (0.3) (0.2) (0.3) (0.2)
Distribution center
closure.................. 5.5 -- 1.5 --
----- ----- ----- -----
Operating loss............. (12.4) (4.0) (3.8) (0.7)
Other expense:
Interest expense, net..... 2.7 1.4 2.1 1.1
Other expense............. 0.3 0.7 0.2 0.6
----- ----- ----- -----
Loss before income taxes... (15.4) (6.1) (6.1) (2.4)
Benefit for income taxes... -- (2.3) -- (0.9)
----- ----- ----- -----
Net loss................... (15.4)% (3.8)% (6.1)% (1.5)%
===== ===== ===== =====
</TABLE>
Results Of Operations
Quarter Ended November 30, 2000 vs Quarter Ended November 30, 1999
Net sales for the quarter ended November 30, 2000 decreased 28% to $97.4
million from $136.0 million for the same period in 1999. Second quarter same
store daily sales decreased 23.1%. Net sales were adversely impacted by supply
chain issues and a general slow down in the industry.
Gross profit for the quarter ended November 30, 2000, decreased 28.9% to
$23.3 million from $32.8 million for the same period in 1999. The gross profit
percentage for the quarter ended November 30, 2000 stayed essentially the same,
decreasing to 24.0% from 24.1% for the same period in 1999.
Warehousing, selling, and administrative expenses during the quarter
decreased 17.8% to $30.7 million from $37.3 million for the same period in
1999. As a result of the decline in sales, and the closure of branches, non-
personnel related warehousing, selling, and administrative expenses were
reduced by $6.6 million as compared to the same period in the prior year.
Interest expense, net, for the third quarter ended November 30, 2000
increased to $2.7 million from $1.9 million for the same period in 1999,
primarily due to higher interest rates and higher outstanding balances. During
the year ended February 29, 2000, the Company used an accounts receivable
securitization program, and the discount on the sale of accounts receivable of
$559,000 for the quarter ended November 30, 1999 was recorded as "Other
Expense" on the statements of operations. This program was terminated on
February 29, 2000.
9
<PAGE>
Nine Months Ended November 30, 2000 and November 30, 1999
Net sales for the nine months ended November 30, 2000, decreased 27.5% to
$364.7 million from $502.8 million for the same period in 1999. Same store
daily sales through nine months decreased 20.6%. Net sales and same store sales
were negatively impacted by inadequate levels of inventory at the start of the
year, the ongoing effects of the restructuring effort, along with a general
slow down in the industry in the third quarter ended November 30, 2000.
Gross profit for the nine months ended November 30, 2000 decreased 25.1% to
$85.4 million from $114.0 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 nine months ended November 30, 2000
increased to 23.4% from 22.7% for the same period in 1999.
Warehousing, selling, and administrative expenses for the nine months ended
November 30, 2000 decreased 17.2% to $93.9 million from $113.4 million for the
same period in 1999. As a result of the decline in sales, and the closure of
branches, non-personnel related warehousing, selling, and administrative
expenses were reduced by $19.5 million as compared to the same period in the
prior year.
Interest expense, net, for the nine months ended November 30, 2000 increased
$2.3 million to $7.7 million from $5.4 million for the same period in 1999,
primarily due to higher interest rates and higher balances. The discount on the
sale of accounts receivable for the securitization program of $2.4 million for
the nine months ended November 30, 1999 was recorded as "Other Expense" on the
statements of operations.
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).
The Company's working capital increased to $87.6 million at November 30,
2000 from $80.1 million at February 29, 2000.
The Company's capital expenditures, excluding acquisitions, for the nine
months ended November 30, 2000, were $693,000 as compared to $3.4 million for
the previous year. Such capital expenditures were primarily for branch and
leasehold improvements, and computer equipment and 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 addition to, the aggregate limit of the
New Credit Agreement).
At November 30, 2000, the Company had borrowings of $73.6 million
outstanding under the New Revolver Facility. These borrowings are due February
17, 2005. Interest is based on LIBOR plus 3.25% for specified loan amounts and
the prime rate plus 1.25% for borrowings in excess of specified loan amounts.
The effective borrowing rate at November 30, 2000 was 10.0%.
At November 30, 2000, debt includes $20.9 million outstanding under a
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 interest of 12% per annum due quarterly. The 12%
interest consists of 6% payable in cash and 6% added to principal ("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 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; 2002-$24.3 million;
2003-$25.7 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,
fundamental changes, dividends, and investments. At November 30, 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 as of February 29, 2000, 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 fiscal 2000, 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 another 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 and September 21, 2000, the Company obtained additional
funding from private investors of $10 million and $2.5 million, respectively,
in exchange for shares of Series 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.
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 fiscal
2001. 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 financing may require the
consent of the Company's existing lenders.
Subsequent Events
On December 2, 2000, the Company entered into a fifth amendment to the New
Credit Agreement. In general, the amendment modified certain debt covenant
levels.
On December 2, 2000, the Company obtained additional funding from private
investors of $12.5 million in exchange for 62,500 shares of a new Series C
preferred stock pursuant to the existing February 18, 2000
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Securities Purchase Agreement. The Series C preferred stock is convertible into
shares of the Company's common stock at a conversion price per share of $1.65
and will have the right to vote with the common stock on an as-converted basis.
On December 6, 2000, the Company received notice that the New York Stock
Exchange ("NYSE") had determined that the Company's common stock should be
delisted from the NYSE. The NYSE's action was taken in view of the fact that
the Company is below the NYSE's continued listing criteria relating to total
global market capitalization less than $50 million, total stockholder's equity
of less than $50 million and average global market capitalization over a
consecutive 30 day trading period of less than $15 million. In addition, the
plan for return to conformity with continued listing standards was not
acceptable to the Listings and Compliance Committee of the NYSE. On December
28, 2000, the Company was delisted from the NYSE, and trading of the Company's
common stock began on the NASDAQ Over the Counter Bulletin Board under the
symbol PAMC.
On January 15, 2001, the Company received an offer from Littlejohn Fund II,
L.P. and Quilvest American Equity Ltd. to acquire all of the outstanding shares
of common stock of the Company for $0.40 per common share, payable in cash.
Filed herewith as an exhibit to this Quarterly Report on Form 10-Q is the press
release of the Company announcing receipt of this offer.
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.
Other
The Company is in the process of assessing certain operations and strategic
plans. This assessment may result in changes in the Company's forecasts of
future operating results and the recoverability of the excess of cost over
acquired net assets. The Company plans to complete this assessment in the
fourth quarter of fiscal 2001. It is possible that additional non-cash charges
against operations could result.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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.
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PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 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
99 -- Press release announcing the receipt on January 15, 2001 of an offer
to purchase common stock of the Company
(b) Reports on Form 8-K
none
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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)
/s/ Robert J. Davis
By: _________________________________
Robert J. Davis
Chief Financial Officer
January 16, 2001
(Mr. Davis has been duly authorized
to sign on behalf of the registrant)
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