UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A (Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 5, 1996
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 0-20022
POMEROY COMPUTER RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1227808
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1020 Petersburg Road Hebron, KY 41048
(Address of principal executive offices)
(606) 586-0600
(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 requirements
for the past 90 days.
YES ___X___NO___
The number of shares of common stock outstanding as of December
27, 1996 was 6,468,518.
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POMEROY COMPUTER RESOURCES, INC.
TABLE OF CONTENTS
Part I. Financial Information Page
Item 2. Management's Discussion 1
and Analysis of Financial
Condition and Results of
Operations
SIGNATURE 3
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total Net Sales and Revenues
Total net sales and revenues increased $28.0 million, or 43.1%,
to $93.0 million in the third quarter of 1996 from $65.0 million
in the third quarter of 1995. This increase was attributable to
the acquisition of The Computer Supply Store, Inc. ( TCSS ),
and increased sales to existing and new customers. After
eliminating (i) fiscal 1995 revenues relating to the Kingsport,
Tennessee branch which was closed in September 1995, and P&G,
which ceased to purchase products and services from the Company
in September 1995 and (ii) fiscal 1996 revenues from the
acquisition of TCSS which was acquired in March 1996, total net
sales and revenues increased 22.0%. Sales of equipment and
supplies increased $26.1 million, or 43.6%, to $85.8 million in
the third quarter of 1996 from $59.7 million in the third quarter
of 1995. On a comparable basis, as described above, sales of
equipment and supplies increased 20.4%. Service
revenues increased $2.0 million, or 37.1%, to $7.2 million in the
third quarter of 1996 from $5.2 million in the third quarter of
1995. On a comparable basis, as described above, service
revenues increased 39.3%.
Total net sales and revenues increased $62.6 million, or 36.5% to
$234.0 million in the first nine months of 1996 from $171.5
million in the first nine months of 1995. This increase was
attributable to the acquisition of TCSS and increased sales to
existing and new customers. On a comparable basis, as described
above, total net sales and revenues increased 25.2%. Sales of
equipment and supplies increased $56.7 million, or 36.0%, to
$214.1 million in the first nine months of 1996 from $157.4
million in the first nine months of 1995. After elimination of
the revenues described above, sales of equipment and supplies
increased 22.9%. Service revenues increased $5.9
million, or 42.1%, to $19.9 million in the first nine months of
1996 from $14.0 million in the first nine months of 1995. After
elimination of the revenues described above, service
revenues increased 50.2%.
Gross Profit
Gross profit margin was 15.8% in the third
quarter of 1996 compared to 13.5% in the third quarter of 1995.
This increase was attributable to a lesser number of lower
margin, high volume equipment rollouts, larger vendor rebates and
the increase in the margin for service revenues. In the
third quarter of 1995, the lower margin was due to strong price
competition and large volume equipment rollouts that contributed
significantly to lowering gross profit as a percentage of sales.
Provided there are no changes in rebate programs, the level of
vendor rebates is expected to continue into the fourth quarter as
volume purchases with major manufacturers continue to increase.
Gross profit margin was 15.9% in the first nine
months of 1996 compared to 14.2% in the first nine months of
1995. This increase was attributable to the same factors as
described above.
Operating Expenses
Selling, general and administrative expenses expressed as a
percentage of total net sales and revenues increased to 9.4% and
10.0% for the third quarter and first nine months of 1996,
respectively, from 9.2% and 9.6% in the third quarter and first
nine months of 1995, respectively. This increase is primarily
attributable to the addition of technical personnel as a result
of the growth of the Company's service business. As the personnel
reach full productivity, their cost as a percent of services
revenues should decrease. In addition, market development funds,
which reduce selling, general and administrative expenses, have
declined during the third quarter and first nine months of 1996
as a percentage of total net sales and revenues primarily as a
result of vendors shifting funds to rebates. Total operating
expenses expressed as a percentage of total net sales and
revenues increased to 10.5% and 11.1% in the third quarter and
first nine months of 1996, respectively, from 9.9% and 10.4% in
the third quarter and first nine months of 1995, respectively,
due to the reduction of market development funds, the increase in
depreciation related to the new headquarters and distribution
facilities and amortization of goodwill related to the
acquisition of TCSS.
Income from Operations
Income from operations increased $2.6 million, or 109.7%, to $4.9
million in the third quarter of 1996 from $2.3 million in the
third quarter of 1995. The Company's operating margin increased
to 5.3% in the third quarter of 1996 as compared to 3.6% in 1995
because the increase in gross margin more than offset the
increase in operating expenses as a percent of total net sales
and revenues.
Income from operations increased $4.5 million, or 68.3%, to $11.1
million in the first nine months of 1996 from $6.6 million in the
first nine months of 1995. The Company's operating margin
increased to 4.8% in the first nine months of 1996 from 3.9% in
the first nine months of 1995 because the increase in gross
margin more than offset the increase in operating expenses as a
percentage of net sales and revenues.
Interest Expense
Interest expense was $0.5 million and $1.6 million in the third
quarter and first nine months of 1996, respectively, compared
to $0.5 million and $1.5 million in the third quarter and
first nine months of 1995, respectively.
Income Taxes
The Company's effective tax rate was 40.6% in the third quarter
of 1996 compared to 40.4% in the third quarter of 1995. The
Company's effective tax rate was 40.6% in the first nine months
of 1996 compared to 40.5% in the first nine months of 1995.
Litigation Settlement and Related Costs
On April 29, 1996, the Company agreed to a settlement of the
litigation with Vanstar Corporation. The settlement of $3.3
million consisted of a payment made by the Company to Vanstar of
$1.65 million in cash and a $1.65 million note which was paid on
August 27, 1996. The settlement agreement also provided for
mutual forgiveness of any and all claims or obligations of the
parties, resulting in a write-off of $0.5 million of receivables
from Vanstar and additional expenses of $0.5 million for costs
related to the litigation.
Net Income
Net income increased $1.5 million, or 140.7%, to $2.6 million in
the third quarter of 1996 from $1.1 million in the third quarter
of 1995 due to the factors described above. Net income increased
$0.1 million, or 2.3%, to $3.1 million in the first nine months
of 1996 from $3.0 million in the first nine months of 1995 due to
the factors described above. Excluding the impact of the Vanstar
settlement, net income in the first nine months of 1996 would
have been $5.7 million, an increase of 90.0% over the comparable
period in 1995.
Liquidity and Capital Resources
Cash used in operating activities was $5.5 million in the first
nine months of 1996. Cash used in investing activities included
$4.5 million for acquisitions and $2.8 million for capital
expenditures. Cash provided by financing activities included
$17.9 million of net proceeds from the issuance of 1.4 million
shares of common stock in July 1996 and $1.3 million from the
exercise of stock options less $1.1 million of repayments on
bank notes payable, $2.3 million of repayments on various notes
payable and $0.3 million for the redemption of warrants.
During the second quarter of 1996 the line of credit under the
bank loan agreement was increased to $25 million through April
30, 1997.
It is expected that available credit under the Company's lending
arrangements along with internally generated funds will be
sufficient to finance its near-term growth.
On August 2, 1996, the Company acquired certain assets of a
network service provider located in Birmingham, AL, for
approximately $0.5 million. This acquisition enabled the Company
to expand the operations of its existing branch office in Birmingham.
On October 11, 1996, the Company acquired certain assets of
Communications Technology, Inc., d/b/a DILAN
( DILAN ), a privately held network integrator headquartered in
Hickory, North Carolina. The purchase price consisted of $2.6
million in cash, a $1.1 million note and the assumption of $5.5
million of liabilities. The cash used to acquire DILAN was
provided by short-term borrowings through the Company's
revolving credit agreement.
The Company regularly evaluates various expansion opportunities
including the acquisition of resellers or related businesses in
growing market areas and service and support companies that
complement its ongoing operations.
SIGNATURE
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.
POMEROY COMPUTER RESOURCES, INC.
(Registrant)
Date: January 6, 1997 By: /s/ Edwin S. Weinstein
Edwin S. Weinstein,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
