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 April 5, 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 0-20022
POMEROY COMPUTER RESOURCES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1227808
- -------- ----------
(State or jurisdiction of (IRS Employer
incorporation 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 April 30, 2000 was
12,094,226.
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<PAGE>
POMEROY COMPUTER RESOURCES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements: Page
----
<S> <C> <C> <C>
Consolidated Balance Sheets as of
January 5, 2000 and April 5, 2000 3
Consolidated Statements of Income for
the Three Months Ended April 5, 1999 and 2000 5
Consolidated Statements of Cash Flows
for the Three Months Ended April 5, 1999
and 2000 6
Notes to Consolidated
Financial Statements 7
Management's Discussion and
Analysis of Financial Condition
Item 2. and Results of Operations 9
Part II. Other Information 11
SIGNATURE 11
</TABLE>
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands) January 5, April 5,
2000 2000
----------- ---------
ASSETS
Current assets:
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,737 $ 64
Accounts receivable:
Trade, less allowance of $504 and $371 at January 5, 2000
and April 5, 2000, respectively . . . . . . . . . . . . 129,734 128,418
Vendor receivables, less allowance of $1,902 at
January 5, 2000 and April 5, 2000, respectively . . . . 57,309 51,608
Net investment in leases . . . . . . . . . . . . . . . . . 14,937 20,682
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 681 552
----------- ---------
Total receivables. . . . . . . . . . . . . . . . . . 202,661 201,260
----------- ---------
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 38,858 27,778
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,819 4,914
----------- ---------
Total current assets . . . . . . . . . . . . . . . . 247,075 234,016
----------- ---------
Equipment and leasehold improvements. . . . . . . . . . . . . 25,276 25,742
Less accumulated depreciation . . . . . . . . . . . . . . . . 9,804 10,681
----------- ---------
Net equipment and leasehold improvements . . . . . . 15,472 15,061
----------- ---------
Net investment in leases. . . . . . . . . . . . . . . . . . . 29,183 28,123
Goodwill and other intangible assets. . . . . . . . . . . . . 39,344 38,915
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . 2,067 4,986
----------- ---------
Total assets.. . . . . . . . . . . . . . . . . . . . $ 333,141 $ 321,101
=========== =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands) January 5, April 5,
2000 2000
----------- ---------
LIABILITIES & EQUITY
Current liabilities:
<S> <C> <C>
Current portion of notes payable . . . . . . . . . . . . . . . . $ 11,337 $ 21,278
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 92,454 72,929
Bank notes payable . . . . . . . . . . . . . . . . . . . . . . . 69,027 44,730
Other current liabilities. . . . . . . . . . . . . . . . . . . . 13,131 14,126
----------- ---------
Total current liabilities. . . . . . . . . . . . . . . . . 185,949 153,063
----------- ---------
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,971 18,470
Equity:
Preferred stock (no shares issued or outstanding). . . . . . . . - -
Common stock (11,843 and 12,092 shares issued and outstanding
at January 5, 2000 and April 5, 2000, respectively) . . . . . 118 121
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . 66,743 69,801
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 73,682 79,968
----------- ---------
140,543 149,890
Less treasury stock, at cost (31 shares at January 5, 2000 and
April 5, 2000). . . . . . . . . . . . . . . . . . . . . . . . 322 322
----------- ---------
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . 140,221 149,568
----------- ---------
Total liabilities and equity. . . . . . . . . . . . . . . . . $ 333,141 $ 321,101
=========== =========
</TABLE>
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands, except per share data) Three Months Ended
--------------------------------
April 5, April 5,
1999 2000
-------------------- ----------
<S> <C> <C>
Net sales and revenues. . . . . . . . . $ 163,924 $ 211,578
Cost of sales and service . . . . . . . 141,065 184,801
-------------------- ----------
Gross profit . . . . . . . . . 22,859 26,777
-------------------- ----------
Operating expenses:
Selling, general and administrative. 11,363 12,806
Rent expense . . . . . . . . . . . . 706 792
Depreciation . . . . . . . . . . . . 1,095 1,025
Amortization . . . . . . . . . . . . 623 912
-------------------- ----------
Total operating expenses . . . 13,787 15,535
-------------------- ----------
Income from operations. . . . . . . . . 9,072 11,242
-------------------- ----------
Other expense (income):
Interest expense.. . . . . . . . . . 785 928
Miscellaneous. . . . . . . . . . . . (29) (48)
-------------------- ----------
Total other expense. . . . . . 756 880
-------------------- ----------
Income before income tax . . . . . . 8,316 10,362
Income tax expense . . . . . . . . . 3,248 4,076
-------------------- ----------
Net income . . . . . . . . . . . . . $ 5,068 $ 6,286
==================== ==========
Weighted average shares outstanding:
Basic. . . . . . . . . . . . . . . . 11,692 11,883
==================== ==========
Diluted. . . . . . . . . . . . . . . 11,858 12,138
==================== ==========
Earnings per common share:
Basic. . . . . . . . . . . . . . . . $ 0.43 $ 0.53
==================== ==========
Diluted. . . . . . . . . . . . . . . $ 0.43 $ 0.52
==================== ==========
</TABLE>
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands) Three Months Ended
--------------------------------
April 5, April 5,
1999 2000
-------------------- ----------
Cash Flows from Operating Activities:
<S> <C> <C>
Net cash flows used in operating activities . $ (3,043) $ (501)
Cash Flows from Investing Activities:
Capital expenditures. . . . . . . . . . . . . (956) (1,008)
Acquisition of assets, net of cash acquired . (52) (368)
-------------------- ----------
Net investing activities . . . . . . . . . . . . (1,008) (1,376)
-------------------- ----------
Cash Flows from Financing Activities:
Net borrowings (payments) on bank notes payable. 3,489 (24,298)
Net borrowings (payments) on notes payable . . . (1,729) 21,441
Proceeds from exercise of stock options. . . . . 135 3,061
-------------------- ----------
Net financing activities. . . . . . . . . . . 1,895 204
-------------------- ----------
Decrease in cash . . . . . . . . . . . . . . . . (2,156) (1,673)
Cash:
Beginning of period . . . . . . . . . . . . . 3,962 1,737
-------------------- ----------
End of period . . . . . . . . . . . . . . . . $ 1,806 $ 64
==================== ==========
</TABLE>
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The 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 Rule 10-01 of Regulation S-X.
Except as disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended
January 5, 2000. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the
interim period have been made. The results of operations for the
three-month period ended April 5, 2000 are not necessarily indicative of
the results that may be expected for future interim periods or for the year
ending January 5, 2001.
2. Cash and Bank Notes Payable
The Company maintains a sweep account with its bank whereby daily cash
receipts are automatically transferred as a payment towards the Company's
credit facility. As a result, the Company maintains minimal cash in its
bank account. At January 5 and April 5, 2000, bank notes payable include
$19.1 million and $22.0 million, respectively, of overdrafts in accounts
with a participant bank to the Company's credit facility. These amounts
were subsequently funded through the normal course of business.
3. Earnings per Common Share
The following is a reconciliation of the number of shares used in the basic
EPS and diluted EPS computations: (in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended April 5,
---------------------------------------
1999 2000
------------------ -------------------
Per Share Per Share
Shares Amount Shares Amount
------ ---------- ------ -----------
<S> <C> <C> <C> <C>
Basic EPS 11,692 $ 0.43 11,883 $ 0.53
Effect of dilutive
Stock options 166 - 255 (0.01)
------ ---------- ------ -----------
Diluted EPS 11,858 $ 0.43 12,138 $ 0.52
====== ========== ====== ===========
</TABLE>
4. Supplemental Cash Flow Disclosures
Supplemental disclosures with respect to cash flow information and non-cash
investing and financing activities are as follows: (in thousands)
<TABLE>
<CAPTION>
Three Months Ended April 5,
-----------------------------
1999 2000
------- -------
<S> <C> <C>
Interest paid $ 793 $ 927
======== ======
Income taxes paid $ 589 $1,386
======== ======
Adjustments to purchase price
of acquisition assets $ 1,740 $ -
======== ======
</TABLE>
5. Related Parties
A director of the Company is president of Information Leasing Corporation
("ILC"). In the first quarter of fiscal 2000, the Company sold certain
leases to ILC for $5.0 million.
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6. Litigation
There are various legal actions arising in the normal course of business
that have been brought against the Company. Management believes these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
7. Segment Information
Summarized financial information concerning the Company's reportable
segments is shown in the following table. (in thousands)
<TABLE>
<CAPTION>
Three Months Ended April 5, 1999
---------------------------------------------
Products Services Leasing Consolidated
--------- --------- -------- -------------
<S> <C> <C> <C> <C>
Revenues $ 140,799 $ 22,255 $ 870 $ 163,924
Income from operations 3,880 4,847 345 9,072
Total assets 180,404 51,231 25,572 257,207
Capital expenditures 349 222 385 956
Depreciation and amortization 1,179 308 231 1,718
Three Months Ended April 5, 2000
---------------------------------------------
Products Services Leasing Consolidated
--------- --------- -------- -------------
<S> <C> <C> <C> <C>
Revenues $ 178,036 $ 30,165 $ 3,377 $ 211,578
Income from operations 3,920 6,009 1,313 11,242
Total assets 206,947 54,082 60,072 321,101
Capital expenditures 951 57 - 1,008
Depreciation and amortization 1,513 354 70 1,937
</TABLE>
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<PAGE>
Special Cautionary Notice Regarding Forward-Looking Statements
--------------------------------------------------------------
Certain of the matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contain certain
forward looking statements regarding future financial results of the Company.
The words "expect," "estimate," "anticipate," "predict," and similar expressions
are intended to identify forward-looking statements. Such statements are
forward-looking statements for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Important factors that could cause the actual
results, performance or achievements of the Company to differ materially from
the Company's expectations are disclosed in this document including, without
limitation, those statements made in conjunction with the forward-looking
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations". All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by such
factors.
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 $47.7
million, or 29.1%, to $211.6 million in the first quarter of fiscal 2000 from
$163.9 million in the first quarter of fiscal 1999. This increase was
attributable to an increase in sales to existing and new customers. This
increase also reflects an increase in sales volume with unit prices relatively
stable in the first quarter of fiscal 2000 as compared to the first quarter of
fiscal 1999. Products and leasing sales increased $39.7 million, or 28.0%, to
$181.4 million in the first quarter of fiscal 2000 from $141.7 million in the
first quarter of fiscal 1999. Service revenues increased $7.9 million, or 35.5%,
to $30.2 million in the first quarter of fiscal 2000 from $22.3 million in the
first quarter of fiscal year 1999.
GROSS MARGINS. Gross margin decreased to 12.7% in the first quarter of fiscal
2000 as compared to 13.9% in the first quarter of fiscal 1999. This decrease in
gross margin resulted primarily from the Company's decision to obtain new
business and increase sales by aggressively pricing certain products and
services. Service revenues increased to 14.3% of total net sales and revenues
in the first quarter of fiscal 2000 compared to 13.6% of total net sales and
revenues in the first quarter of fiscal 1999. Service gross margin increased to
45.2% of total gross margin in the first quarter of fiscal 2000 from 42.7% in
the first quarter of fiscal 1999. This increase in the percentage of service
gross margin to total gross margin was primarily due to the increase in
higher-margin service revenues. Factors that may have an impact on gross margin
in the future include the further decline of unit prices, the percentage of
equipment or service sales with lower-margin customers, the ratio of service
revenues to total net sales and revenues, and personnel utilization rates.
OPERATING EXPENSES. Selling, general and administrative expenses (including
rent expense) expressed as a percentage of total net sales and revenues
decreased to 6.4% in the first quarter of fiscal 2000 from 7.4% in the first
quarter of fiscal 1999. This decrease is primarily due to the growth in net
sales and revenues exceeding the growth in selling, general and administrative
expenses. Total operating expenses expressed as a percentage of total net sales
and revenues decreased to 7.3% in the first quarter of fiscal 2000 from 8.4% in
the first quarter of fiscal 1999 for the reason noted above and offset by the
increase in amortization expense as a result of acquisitions.
INCOME FROM OPERATIONS. Income from operations increased $2.1 million, or
23.9%, to $11.2 million in the first quarter of fiscal 2000 from $9.1 million in
the first quarter of fiscal 1999. The Company's operating margin decreased to
5.3% in the first quarter of fiscal 2000 as compared to 5.5% in the first
quarter of fiscal 1999. This decrease is primarily due to the decrease in the
Company's gross margin.
INTEREST EXPENSE. Interest expense increased $0.1 million, or 18.2%, to $0.9
million in the first quarter of fiscal 2000 from $0.8 million in the first
quarter of fiscal 1999. This increase is primarily due to the Company's overall
increase in debt borrowings in the first quarter of fiscal 2000.
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INCOME TAXES. The Company's effective tax rate was 39.3% in the first quarter
of fiscal 2000 compared to 39.1% in the first quarter of fiscal 1999.
NET INCOME. Net income increased $1.2 million, or 24.0%, to $6.3 million in the
first quarter of fiscal 2000 from $5.1 million in the first quarter of fiscal
1999 due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $0.5 million in the first three months of
fiscal 2000. Cash used in investing activities was $1.4 million which included
$1.0 million for capital expenditures and $0.4 million for acquisitions
completed in fiscal 1999. Cash provided by financing activities was $0.2 million
which included $21.4 million of net borrowings on notes payable, $3.1 million
from the exercise of stock options and $24.3 million of net payments on bank
notes payable.
A significant part of the Company's inventories is financed by floor plan
arrangements with third parties. At April 5, 2000, these lines of credit totaled
$72.0 million, including $60.0 million with Deutsche Financial Services ("DFS")
and $12.0 million with IBM Credit Corporation ("ICC"). Borrowings under the DFS
floor plan arrangements are made on thirty-day notes. Borrowings under the ICC
floor plan arrangements are made on either thiry-day or sixty-day notes. All
such borrowings are secured by the related inventory. Financing on substantially
all of the arrangements is interest free due to subsidies by manufacturers.
Overall, the average rate on these arrangements is less than 1.0%. The Company
classifies amounts outstanding under the floor plan arrangements as accounts
payable.
The Company's financing of receivables is provided through a portion of its
credit facility with DFS. The credit facility provides a credit line of $80.0
million for accounts receivable financing. The accounts receivable portion of
the credit facility carries a variable interest rate based on the prime rate
less 125 basis points. At April 5, 2000, the amount outstanding was $44.7
million, including $22.0 million of overdrafts on the Company's books in
accounts at a participant bank on the credit facility, which was at an interest
rate of 7.75%. The overdrafts were subsequently funded through the normal course
of business. The credit facility is collateralized by substantially all of the
assets of the Company, except those assets that collateralize certain other
financing arrangements. Under the terms of the credit facility, the Company is
subject to various financial covenants.
During the first quarter of fiscal 2000, the Company increased the leasing
activity through its wholly-owned leasing subsidiary, TIFS. This increased
leasing activity during the first quarter of fiscal 2000 resulted in $22.4
million in increased net borrowings under the Company's notes payable. The
funding of the Company's net investment in sales-type leases is provided by
various financial institutions on a nonrecourse basis. Further increases in
leasing operations could impact one or more of total net sales and revenues,
gross margin, operating income, net income, total debt and liquidity, depending
on the amount of leasing activity and the types of leasing transactions.
The Company believes that the anticipated cash flow from operations and current
financing arrangements will be sufficient to satisfy the Company's capital
requirements for the next twelve months. Historically, the Company has financed
acquisitions using a combination of cash, earn outs, shares of its Common Stock
and seller financing. The Company anticipates that future acquisitions will be
financed in a similar manner.
OTHER
Year 2000 Issues
The Company experienced no technology-related problems upon the arrival of
January 1, 2000, nor was there any disruption to the business. During the year
leading up to January 1, 2000, the Company implemented a Year 2000 compliance
program designed to ensure that the Company's computer systems and applications
would function properly beyond 1999. The program was successfully completed
during 1999. The cost of the program was not significant other than the time
spent by the Company's own personnel. The Company will continue to monitor all
critical systems for the appearance of delayed complications or disruptions and
problems encountered through suppliers, customers and other third parties with
whom the Company deals. Although these and other unanticipated Year 2000 issues
could have an adverse effect on the results of operations or financial condition
of the Company, it is not possible to anticipate the extent of impact at this
time.
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POMEROY COMPUTER RESOURCES, INC.
PART II - OTHER INFORMATION
Items 1 to 3 None
Item 4 None
Item 5 None
Item 6 Exhibits and Reports on Form 8-K
11 Computation of Earnings per Share
27 Financial Data Schedules
(b) Reports on Form 8-K None
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: May 17, 2000 By: /s/ Stephen E. Pomeroy
------------------------------
Stephen E. Pomeroy
Chief Financial Officer and
Chief Accounting Officer
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<TABLE>
<CAPTION>
Pomeroy Computer Resources, Inc.
Exhibit 11 - Computation of Earnings Per Share
(in thousands, except per share amounts)
Quarter Ended
April 5,
------------------
1999 2000
--------- -------
<S> <C> <C>
BASIC
Weighted average common shares
outstanding 11,692 11,883
========== =======
Net income $ 5,068 $ 6,286
========== =======
Net income per common share $ 0.43 $ 0.53
========== =======
DILUTED
Weighted average common shares
outstanding 11,692 11,883
Dilutive effect of stock options outstanding
during the period 166 255
Total common and common equivalent
shares 11,858 12,138
========== =======
Net income $ 5,068 $ 6,286
========== =======
Net income per common share $ 0.43 $ 0.52
========== =======
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The followig Financial Data Schedule contains standard data for the three months
ended April 5, 2000.
</LEGEND>
<MULTIPLIER> 1
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-05-2001
<PERIOD-START> JAN-06-2000
<PERIOD-END> APR-05-2000
<CASH> 64
<SECURITIES> 0
<RECEIVABLES> 201260
<ALLOWANCES> 2273
<INVENTORY> 27778
<CURRENT-ASSETS> 234016
<PP&E> 25742
<DEPRECIATION> 10681
<TOTAL-ASSETS> 321101
<CURRENT-LIABILITIES> 153063
<BONDS> 0
0
0
<COMMON> 121
<OTHER-SE> 149447
<TOTAL-LIABILITY-AND-EQUITY> 321101
<SALES> 211578
<TOTAL-REVENUES> 211578
<CGS> 184801
<TOTAL-COSTS> 184801
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 928
<INCOME-PRETAX> 10362
<INCOME-TAX> 4076
<INCOME-CONTINUING> 6286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6286
<EPS-BASIC> .53
<EPS-DILUTED> .52
</TABLE>
