Pomeroy IT Solutions, Inc. | Contact: |
| 1020 Petersburg Road | Kevin Gregory, Sr. Vice President |
| Hebron, KY 41048 | and Chief Financial Officer |
| 859-586-0600 | 859-586-0600 x 1424 |
www.pomeroy.com | kgregory@pomeroy.com |
Pomeroy IT Solutions, Inc. Reports Third Quarter Results
Hebron, KY – November 13, 2007 – Pomeroy IT Solutions, Inc. (NASDAQ:PMRY) a technology and services solution provider, today reported third quarter 2007 revenue of $152.7 million and a net loss of ($91.8) million, including a charge for Goodwill impairment, or ($7.44) per fully diluted share.
“Our primary goal is to return Pomeroy to consistent profitability while also growing our business,” said Keith Coogan, CEO and President of Pomeroy IT Solutions. “Our financial and operational performance during the third quarte was inconsistent in that our product business demonstrated continuing improvement, with increasing revenue and profit margins, while our service business declined in both revenue and gross margin. In addition to our operating performance, the financial results for the third quarter reflect a number of non-cash charges, the largest of which relates to the charge-off of goodwill,” said Coogan.
“We are very focused on making the necessary changes and improvements in order to achieve our profitability and growth goals,” said Coogan regarding Pomeroy’s future direction.
CONSOLIDATED FINANCIAL RESULTS
Third Quarter 2007 Financial Results
Total Revenue in the third quarter of fiscal 2007 was $152.7 million compared to $154.9 million in the third quarter of 2006, a decline of $2.2 million.
Product Revenue:
Product Revenue increased $2.8 million, an increase of 3%. During the third quarter, approximately 48% of our product revenue came from Advanced Technology sales which increased by approximately 7.2% or $3.3 million compared to the third quarter of 2006. This growth was partially offset by a decline in the sale of Commodity Technology products.
Service Revenue:
Service Revenue declined by $5.0 million to $56.2 million in the third quarter of 2007.
Staff Sourcing revenue accounted for approximately 34% of our Service Revenue in the third quarter and declined $2.5 million compared to the third quarter of 2006. This decline was the result of a reduction of $2.2 million in placements at large staffing engagements.
OEM Warranty revenue was approximately 16% of our Service Revenue in the third quarter, reflecting an increase of $0.7 million or 8.4% compared to the third quarter of 2006. The OEM Warranty revenue is aligned with our Advanced Technology sales.
Outsourcing and Project revenue was approximately 50% of Services Revenue in the third quarter and declined $3.2 million compared to the third quarter of 2006. The majority of this decline relates to a reduction in deployment projects and time and material break-fix projects.
Third Quarter 2007 versus Third Quarter 2006 (Continued)
Gross Profit
Gross Profit was $20.7 million in the third quarter of 2007 compared to $22.7 million in the third quarter of 2006. Gross Profit, as a percentage of revenue, was 13.6% in the third quarter of 2007 as compared to 14.6% in the third quarter of 2006. The decline in gross profit is due primarily to a decline in service margins.
Product Gross Profit:
Product Gross Profit was $9.2 million in the third quarter of 2007 compared to $7.4 million in the third quarter of 2006. Gross profit margins were 9.5% in the third quarter of 2007 compared to 7.9% in the third quarter of 2006. The increase in gross profit is due primarily to the higher volumes of Advanced Technology sales and margin improvements as a result of initiatives put in place to promote stronger OEM partnerships.
Service Gross Profit:
Service Gross Profit was $11.5 million in the third quarter of 2007 compared to $15.3 million in the third quarter of 2006. The decline in Service Gross Profit of $3.8 million was the result of lower service revenue and reduced personnel utilization rates. Service margins were 20.5 % in the third quarter of 2007 compared to 25.0% in the third quarter of 2006.
Operating Expenses
Total operating expenses were $124 million in the third quarter of 2007 compared to $24 million in the third quarter of 2006. During the third quarter, the Company finalized its Phase 1 for Goodwill valuation and incurred an estimated charge for Goodwill impairment. Also, during the third quarter, the Company initiated a project to replace its enterprise reporting system that will end-of-life thirteen existing systems. As a result, the Company recorded a charge to write-off certain software and reflects a change in the remaining useful life of other existing software. During the third quarter, the Company took a charge to resolve several of its outstanding lawsuits, claims and older outstanding receivables. Also included were payments related to legal, consulting and settlement costs for corporate matters including the contested Proxy and other accruals.
Expenses identified above that were incurred during the third quarter were $102.2 million and included:
§ Goodwill impairment | | $ | 98.3 million | |
§ Software abandonment and replacement plan | | $ | 2.1 million | |
| | | | | |
§ Settlement of lawsuits, claims and outstanding receivables | | $ | 1.5 million | |
§ Legal, Consulting and Proxy settlement costs | | $ | 0.3 million | |
Excluding these items, operating expenses would have been approximately $22.2 million, an increase of $1.6 million from the third quarter of 2006. Without these expenses, operating expenses as a percentage of Total Revenue were 14.5%.
Net Income
Net Loss was $(91.8) million in the third quarter of 2007 compared to $(1.0) million in the third quarter of 2006. The increase in the net loss was a result of the factors described above. Excluding these expenses identified above, the net loss would have been approximately $(0.8) million in the third quarter of 2007.
Other Financial Information
o Debt | | $ | 0 million | |
o Capital Expenditures | | $ | 1.9 million | |
o Cash Flow(Use)From Operating Activities | | $ | (5.8 million | ) |
o Purchases of Company stock | | $ | 0.4 million | |
o Working Capital | | $ | 92.6 million | |
o Cash, Cash Equivalents and CD’s | | $ | 6.8 million | |
Year-to-date Financial Results
Total Revenue in the first nine months of 2007 was $451.3 million compared to $469.7 million in the first nine months of 2006, a decline of $18.4 million.
Product Revenue:
Product Revenue increased $5.7 million compared to the first nine months of 2006. Product Revenue was $280.3 million in the first nine months of 2007. During the first nine months of 2007 approximately 46% of our product revenue came from Advanced Technology sales.
Service Revenue:
Service Revenue was $171.0 million for the first nine months of 2007, a decline of $24.1 million. This decline was primarily the result of a reduction in placements at a large staffing engagement and reduced project work.
Staff Sourcing revenue accounted for approximately 33% of our Service Revenue in the first nine months of 2007. Staff Sourcing revenue declined $9.0 million compared to the first nine months of 2006, which was primarily the result of an $8.3 million reduction in Staff Sourcing revenue at large staffing engagements.
OEM Warranty revenue was approximately 16% of our Service Revenue in the first nine months of 2007. Compared to the first nine months of 2006, Warranty revenue declined $1.7 million. This decline resulted from the shortfall we experienced in the first quarter of 2007.
Outsourcing and Project revenue accounted for 51% of Services Revenue in the first nine months of 2007. Outsourcing and Project revenue declined $13.4 million compared to the first nine months of 2006. The majority of this decline relates to a reduction in deployment projects, time and material break-fix projects and customer attrition in our smaller market segments.
Gross Profit
Gross Profit was $66.5 million in the first nine months of 2007 compared to $68.5 million in the first nine months of 2006. Gross profit, as a percentage of revenue, increased to 14.7% in the first nine months of 2007 from 14.6% in the first nine months of 2006.
Product Gross Profit:
Product Gross Profit was $24.9 million in the first nine months of 2007 compared to $22.0 million in the first nine months of 2006. Gross Profit margins increased to 8.9% in the first nine months of 2007 from 8.0% in the first nine months of 2006. The improvement in Product Gross Profit and Product Gross Profit margins is related to increased sales of Advanced Technology products and margin improvements resulting from initiatives put in place to promote stronger OEM partnerships.
Service Gross Profit:
Service Gross Profit was $41.5 million in the first nine months of 2007 compared to $46.5 million in the first nine months of 2006, reflecting a decline in Service Revenue. Service Gross Profit margins increased to 24.3% in the first nine months of 2007 from 23.8% in the first nine months of 2006. Service Gross Profit margins improved due to higher utilization earlier in the year partially offset by the declines in utilization during the third quarter.
October 5, 2007 YTD versus October 5, 2006 YTD (Continued)
Operating Expenses
Operating Expenses were $168.6 million in the first nine months of 2007 compared to $68.7 million in the first nine months of 2006. During the first nine months, the Company took an estimated charge for goodwill impairment. The Company initiated a project to replace its enterprise reporting system. As a result, a charge was recorded to write-off certain software and change the remaining useful life of existing software. The Company also resolved several of its outstanding lawsuits, claims and outstanding receivables and made payments related to prior acquisitions. Also included were payments related to legal, consulting and settlement costs for corporate matters including the contested Proxy and other accruals.
Expenses identified above that were incurred during the first nine months of 2007 were $104.9 million and included:
§ Goodwill impairment | | $ | 98.3 million | |
§ Software abandonment and replacement plan | | $ | 2.1 million | |
§ Settlement of lawsuits, claims and outstanding receivables and payments related to prior acquisitions | | $ | 3.3 million | |
§ Legal, Consulting and Proxy settlement costs | | $ | 1.2 million | |
Excluding these amounts, operating expenses would have been approximately $63.7 million, a reduction of $0.3 million compared to the first nine months of 2006. Without these expenses, operating expenses as a percentage of Total Revenue was 14.1%.
Net loss was $(90.8) million or $(7.36) per share compared to $(0.4) million or $(0.03) per share in the first nine months of 2006. Without these expenses, the net income would have been $1.8 million.
CONFERENCE CALL
To participate in a conference call and questions and answer session with senior management regarding the third quarter 2007 results, call 1-877-842-7108, using pass code 23980384 at 10:00 a.m. (ET) on Wednesday, November 14, 2007. For your convenience, a replay will be available shortly after the call by dialing 1-800-642-1687.
ABOUT POMEROY IT SOLUTIONS, INC.
Pomeroy IT Solutions, Inc. is a leading provider of IT infrastructure solutions focused on enterprise, network and end-user technologies. Leveraging its core competencies in IT Outsourcing and Professional Services, Pomeroy delivers consulting, deployment, operational, staffing and product sourcing solutions through the disciplines of Six-Sigma, program and project management, and industry best practices. Pomeroy's consultative approach and adaptive methodology enables Fortune 2000 corporations, government entities, and mid-market clients to realize their business goals and objectives by leveraging information technology to simplify complexities, increase productivity, reduce costs, and improve profitability. For more information, go to www.pomeroy.com.
FORWARD-LOOKING STATEMENTS
Certain of the statements in the preceding paragraphs regarding financial results constitute forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our markets' actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements, expressed or implied by such forward-looking statements. These risks, and other factors you should specifically consider, include but are not limited to: changes in customer demands or industry standards; existing market and competitive conditions, including the overall demand for IT products and services; the nature and volume of products and services anticipated to be delivered; the mix of the products and services businesses; the type of services delivered; the ability to successfully attract and retain customers, sell additional products and services to existing customers; the ability to timely bill and collect receivables; the ability to maintain a broad customer base to avoid dependence on any single customer; the need to successfully attract and retain outside consulting services; new acquisitions by the Company; terms of vendor agreements and certification programs and the assumptions regarding the ability to perform there under; the ability to implement the Company's best practices strategies; the ability to manage risks associated with customer projects; adverse or uncertain economic conditions; loss of key personnel; litigation; and the ability to attract and retain technical and other highly skilled personnel. In some cases, you can identify forward-looking statements by such terminology as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", "continue", "projects", "intends", "prospects", "priorities", or negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
Non-GAAP Financial Measures
The non-GAAP financial measures contained in this earnings press release exclude certain expenses for payments related to prior acquisitions, legal, consulting and settlement costs related to non-routine corporate matters including the contested proxy, and severance and other accruals. Management uses non-GAAP financial measures to assess the nature of its business, including (i) whether to continue current lines of business or enter new lines of business; (ii) anticipating changes in demands for products and services; (iii) pressures on gross margins; (iv) planning and forecasting its future business; and (v) analyzing prior forecasts against past performance. In addition, excluding these charges enhances the Company’s understanding of trends developing in its operations, as well as its performance in its market and against its competitors. The Company believes that providing non-GAAP net income measures that exclude such items, best allows investors to understand the Company’s ongoing business activities during the quarter. The Company believes that inclusion of certain non-GAAP financial measures provides comparability to other publicly traded companies. The non-GAAP financial measures should not be considered as a substitute for, or preferable to, measures of financial performance prepared in accordance with GAAP and may be different from non-GAAP financial measures used by others. Management recognizes that the use of such non-GAAP financial measures do not take into account the fact that some of the excluded extraordinary expenses could recur or that other extraordinary expenses could be incurred.
The Company believes that these non-GAAP financial measures provide an additional tool for investors to evaluate its ongoing operating results and trends. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as detailed below:
Non-GAAP Financial Measures (Continued)
(in thousands, except per share data) | |
| | | Three Months Ended Ocotber 5, 2007 | | | Three Months Ended Ocotber 5, 2006 | |
| | | Net loss | | | Basic Earnings Per Share | | | Diluted Earnings Per Share | | | Net loss | | | Basic Earnings Per Share | | | Diluted Earnings Per Share | |
| | | | | | | | | | | | | | | | | | | |
| As reported GAAP financial measures | | $ | (91,794 | ) | | $ | (7.44 | ) | | | * | | | $ | (1,012 | ) | | $ | (0.08 | ) | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjustments | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill impairment | | | 98,314 | | | | 7.97 | | | | * | | | | 3,472 | | | | 0.28 | | | | * | |
| Settlement of lawsuits, claims and outstanding receivables | | | 1,463 | | | | 0.12 | | | | * | | | | - | | | | - | | | | | |
| Software abandonment and replacement plan | | | 2,081 | | | | 0.17 | | | | * | | | | - | | | | - | | | | | |
| Legal, Consulting and Proxy settlement costs | | | 252 | | | | 0.02 | | | | * | | | | - | | | | - | | | | | |
| Stock based compensation | | | | | | | | | | | | | | | 290 | | | | 0.02 | | | | * | |
| Income tax effect on non-GAAP adjustments and applying the same current year effective rate to prior year | | | (11,156 | ) | | | (0.91 | ) | | | * | | | | (1,467 | ) | | | (0.12 | ) | | | * | |
| Total adjustments | | | 90,954 | | | | 7.37 | | | | * | | | | 2,295 | | | | 0.18 | | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-GAAP financial measures | | $ | (840 | ) | | $ | (0.07 | ) | | | * | | | $ | 1,283 | | | $ | 0.10 | | | $ | 0.10 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended Ocotber 5, 2007 | | | Nine Months Ended Ocotber 5, 2006 | |
| | | Net Loss | | | Basic Earnings Per Share | | | Diluted Earnings Per Share | | | Net Loss | | | Basic Earnings Per Share | | | Diluted Earnings Per Share | |
| | | | | | | | | | | | | | | | | | | |
| As reported GAAP financial measures | | $ | (90,821 | ) | | $ | (7.36 | ) | | | * | | | $ | (400 | ) | | $ | (0.03 | ) | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjustments | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill impairment | | | 98,314 | | | | 7.97 | | | | * | | | | 3,472 | | | | 0.27 | | | | * | |
| Settlement of lawsuits, claims and outstanding receivables | | | 3,308 | | | | 0.27 | | | | * | | | | - | | | | - | | | | | |
| Software abandonment and replacement plan | | | 2,081 | | | | 0.17 | | | | * | | | | - | | | | - | | | | | |
| Legal, Consulting and Proxy settlement costs | | | 1,156 | | | | 0.09 | | | | * | | | | - | | | | - | | | | | |
| Stock based compensation | | | | | | | | | | | | | | | 290 | | | | 0.02 | | | | * | |
| Income tax effect on non-GAAP adjustments and applying the same current year effective rate to prior year | | | (12,199 | ) | | | (0.99 | ) | | | * | | | | (920 | ) | | | (0.07 | ) | | | * | |
| Total adjustments | | | 92,660 | | | | 7.51 | | | | * | | | | 2,842 | | | | 0.22 | | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-GAAP financial measures | | $ | 1,839 | | | $ | 0.14 | | | $ | 0.15 | | | $ | 2,442 | | | $ | 0.19 | | | $ | 0.19 | |
*The dilutive earnings per share is not shown as the effect is anti-dilutive.
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
| (in thousands) | | October 5, | | | January 5, | |
| | | 2007 | | | 2007 | |
| ASSETS | | | | | | |
| | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 5,728 | | | $ | 13,562 | |
| Certificates of deposit | | | 1,103 | | | | 1,076 | |
| | | | | | | | | |
| Accounts receivable: | | | | | | | | |
| Trade, less allowance of $3,447 and $4,390 | | | 130,608 | | | | 139,225 | |
| Vendor receivables, less allowance of $355 and $155 | | | 9,534 | | | | 8,095 | |
| Net investment in leases | | | 841 | | | | 1,587 | |
| Other | | | 762 | | | | 1,367 | |
| Total receivables | | | 141,745 | | | | 150,274 | |
| | | | | | | | | |
| Inventories | | | 19,709 | | | | 16,274 | |
| Other | | | 11,927 | | | | 10,791 | |
| Total current assets | | | 180,212 | | | | 191,977 | |
| | | | | | | | | |
| Equipment and leasehold improvements: | | | | | | | | |
| Furniture, fixtures and equipment | | | 19,660 | | | | 22,540 | |
| Leasehold improvements | | | 8,583 | | | | 8,459 | |
| Total | | | 28,243 | | | | 30,999 | |
| | | | | | | | | |
| Less accumulated depreciation | | | 19,037 | | | | 18,406 | |
| Net equipment and leasehold improvements | | | 9,206 | | | | 12,593 | |
| | | | | | | | | |
| Net investment in leases, net of current portion | | | 11 | | | | 42 | |
| Goodwill | | | - | | | | 98,314 | |
| Intangible assets, net | | | 2,160 | | | | 2,634 | |
| Other assets | | | 11,875 | | | | 3,403 | |
| Total assets | | $ | 203,464 | | | $ | 308,963 | |
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
| (in thousands, except per share) | | October 5, | | | January 5, | |
| | | 2007 | | | 2007 | |
| LIABILITIES AND EQUITY | | | | | | |
| | | | | | | |
| Current Liabilities: | | | | | | |
| Accounts payable | | $ | 67,946 | | | $ | 74,726 | |
| Deferred revenue | | | 2,307 | | | | 2,604 | |
| Employee compensation and benefits | | | 6,836 | | | | 8,642 | |
| Accrued facility closing cost and other liability | | | 1,295 | | | | 1,286 | |
| Other current liabilities | | | 9,141 | | | | 14,412 | |
| Total current liabilities | | | 87,525 | | | | 101,670 | |
| | | | | | | | | |
| Accrued facility closing cost | | | 1,383 | | | | 2,313 | |
| | | | | | | | | |
| Equity: | | | | | | | | |
| Preferred stock, $.01 par value; authorized 2,000 shares (no shares issued or outstanding) | | | - | | | | | |
| Common stock, $.01 par value; authorized 20,000 shares (13,513 and 13,476 shares issued at October 5, 2007 and January 5, 2007, respectively) | | | 138 | | | | 137 | |
| Paid-in capital | | | 90,868 | | | | 89,992 | |
| Accumulated other comprehensive income | | | (60 | ) | | | 15 | |
| Retained earnings | | | 35,612 | | | | 126,433 | |
| | | | 126,558 | | | | 216,577 | |
| Less treasury stock, at cost (1,177 and 1,130 shares at October 5, 2007 and January 5, 2007) | | | 12,002 | | | | 11,597 | |
| Total equity | | | 114,556 | | | | 204,980 | |
| Total liabilities and equity | | $ | 203,464 | | | $ | 308,963 | |
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| (in thousands, except per share data) | | Three Months Ended | |
| | | October 5, | | | October 5, | | | October 5, | | | October 5, | |
| | | 2007 | | | 2007 | | | 2006 | | | 2006 | |
| | | (Unaudited) | | | Non-GAAP | | | (Unaudited) | | | Non-GAAP | |
| | | | | | | | | | | | | |
| Product and service revenues: | | | | | | | | | | | | |
| Product | | $ | 96,495 | | | $ | 96,495 | | | $ | 93,678 | | | $ | 93,678 | |
| Service | | | 56,219 | | | | 56,219 | | | | 61,255 | | | | 61,255 | |
| Total revenues | | | 152,714 | | | | 152,714 | | | | 154,933 | | | | 154,933 | |
| | | | | | | | | | | | | | | | | |
| Cost of product and service revenues: | | | | | | | | | | | | | | | | |
| Product | | | 87,282 | | | | 87,282 | | | | 86,307 | | | | 86,307 | |
| Service | | | 44,702 | | | | 44,702 | | | | 45,966 | | | | 45,966 | |
| Total cost of revenues | | | 131,984 | | | | 131,984 | | | | 132,273 | | | | 132,273 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 20,730 | | | | 20,730 | | | | 22,660 | | | | 22,660 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 21,045 | | | | 21,045 | | | | 19,593 | | | | 19,303 | |
| Depreciation and amortization | | | 1,366 | | | | 1,111 | | | | 1,250 | | | | 1,250 | |
| Goodwill Impairment | | | 98,314 | | | | - | ** | | | 3,472 | | | | - | |
| Settlement of lawsuits, claims and outstanding receivables | | | 1,463 | | | | - | ** | | | - | | | | - | |
| Software abandonment and replacement plan | | | 1,826 | | | | - | ** | | | - | | | | - | |
| Legal, Consulting and Proxy Settlement costs | | | 252 | | | | - | ** | | | - | | | | - | |
| Total operating expenses | | | 124,266 | | | | 22,156 | | | | 24,315 | | | | 20,553 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | | (103,536 | ) | | | (1,426 | ) | | | (1,655 | ) | | | 2,107 | |
| | | | | | | | | | | | | | | | | |
| Interest Income | | | 169 | | | | 169 | | | | 124 | | | | 124 | |
| Interest Expense | | | (98 | ) | | | (98 | ) | | | (128 | ) | | | (128 | ) |
| Interest income (expense), net | | | 71 | | | | 71 | | | | (4 | ) | | | (4 | ) |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income tax | | | (103,465 | ) | | | (1,355 | ) | | | (1,659 | ) | | | 2,103 | |
| Income tax | | | (11,671 | ) | | | (515 | ) | | | (647 | ) | | | 820 | |
| Net income (loss) | | $ | (91,794 | ) | | $ | (840 | ) | | $ | (1,012 | ) | | $ | 1,283 | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 12,335 | | | | 12,335 | | | | 12,591 | | | | 12,591 | |
| Diluted | | | 12,335 | | | | 12,335 | * | | | 12,591 | | | | 12,737 | |
| | | | | | | | | | | | | | | | | |
| Earnings per common share: | | | | | | | | | | | | | | | | |
| Basic | | $ | (7.44 | ) | | $ | (0.07 | ) | | $ | (0.08 | ) | | $ | 0.10 | |
| Diluted | | $ | (7.44 | ) | | $ | (0.07 | )* | | $ | (0.08 | ) | | $ | 0.10 | |
* Dilutive loss per common share for the GAAP three months ended October 5, 2007 and 2006 would have been anti-dilutive if the number of weighted average shares outstanding were adjusted to reflect the dilutive effect of outstanding stock options.
** Non-GAAP numbers exclude the charges related to the Goodwill impairment of $98.3 million; software abandonment and replacement plan of $2.1 million; settlement of lawsuits, claims and outstanding receivables $1.5 million; Legal Consulting and Proxy Settlement costs of $0.3 million.
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| (in thousands,except per share data) | | Nine Months Ended | |
| | | October 5, | | | October 5, | | | October 5, | | | October 5, | |
| | | 2007 | | | 2007 | | | 2006 | | | 2006 | |
| | | (Unaudited) | | | Non-GAAP | | | (Unaudited) | | | Non-GAAP | |
| | | | | | | | | | | | | |
| Product and service revenues: | | | | | | | | | | | | |
| Product | | $ | 280,305 | | | $ | 280,305 | | | $ | 274,636 | | | $ | 274,636 | |
| Service | | | 171,020 | | | | 171,020 | | | | 195,107 | | | | 195,107 | |
| Total revenues | | | 451,325 | | | | 451,325 | | | | 469,743 | | | | 469,743 | |
| | | | | | | | | �� | | | | | | | | |
| Cost of product and service revenues: | | | | | | | | | | | | | | | | |
| Product | | | 255,393 | | | | 255,393 | | | | 252,614 | | | | 252,614 | |
| Service | | | 129,476 | | | | 129,476 | | | | 148,650 | | | | 148,650 | |
| Total cost of revenues | | | 384,869 | | | | 384,869 | | | | 401,264 | | | | 401,264 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 66,456 | | | | 66,456 | | | | 68,479 | | | | 68,479 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 60,321 | | | | 60,321 | | | | 61,368 | | | | 60,182 | |
| Depreciation and amortization | | | 3,636 | | | | 3,381 | | | | 3,819 | | | | 3,819 | |
| Goodwill Impairment | | | 98,314 | | | | - | ** | | | 3,472 | | | | - | |
| Settlement of lawsuits, claims and outstanding receivables | | | 3,308 | | | | - | ** | | | - | | | | - | |
| Software abandonment and replacement plan | | | 1,826 | | | | - | ** | | | - | | | | - | |
| Legal, Consulting and Proxy Settlement costs | | | 1,156 | | | | - | ** | | | - | | | | - | |
| Total operating expenses | | | 168,561 | | | | 63,702 | | | | 68,659 | | | | 64,001 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | | (102,105 | ) | | | 2,754 | | | | (180 | ) | | | 4,478 | |
| | | | | | | | | | | | | | | | | |
| Interest Income | | | 699 | | | | 699 | | | | 431 | | | | 431 | |
| Interest Expense | | | (367 | ) | | | (367 | ) | | | (906 | ) | | | (906 | ) |
| Interest income (expense), net | | | 332 | | | | 332 | | | | (475 | ) | | | (475 | ) |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income tax | | | (101,773 | ) | | | 3,086 | | | | (655 | ) | | | 4,003 | |
| Income tax | | | (10,952 | ) | | | 1,247 | | | | (255 | ) | | | 1,561 | |
| Net income (loss) | | $ | (90,821 | ) | | $ | 1,839 | | | $ | (400 | ) | | $ | 2,442 | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 12,338 | | | | 12,338 | | | | 12,611 | | | | 12,611 | |
| Diluted | | | 12,338 | | | | 12,635 | * | | | 12,611 | | | | 12,670 | |
| | | | | | | | | | | | | | | | | |
| Earnings per common share: | | | | | | | | | | | | | | | | |
| Basic | | $ | (7.36 | ) | | $ | 0.15 | | | $ | (0.03 | ) | | $ | 0.19 | |
| Diluted | | $ | (7.36 | ) | | $ | 0.15 | * | | $ | (0.03 | ) | | $ | 0.19 | |
* Dilutive loss per common share for the GAAP nine months ended October 5, 2007 and 2006 would have been anti-dilutive if the number of weighted average shares outstanding were adjusted to reflect the dilutive effect of outstanding stock options.
** Non-GAAP numbers exclude the charges related to the Goodwill impairment of $98.3 million; software abandonment and replacement plan of $2.1 million; settlement of lawsuits; claims and outstanding receivables $2.4 million; Legal, consulting and Proxy Settlement cost of $ 1.2 million; and payments related to prior acquisitions of $0.9 million. See previous discussion on non-GAAP Financial Measures.
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| (in thousands) | | Nine Months Ended | |
| | | Ocotber 5, 2007 | | | Ocotber 5, 2006 | |
| | | (Unaudited) | | | (Unaudited) | |
| Cash flows from operating activities: | | | | | | |
| Net Loss | | $ | (90,821 | ) | | $ | (400 | ) |
| Adjustments to reconcile net income to net cash from operating activities: | | | | | | | | |
| Depreciation and amortization | | | 4,055 | | | | 3,819 | |
| Stock option, restricted stock compensation and employee purchase plan expense | | | 342 | | | | 1,186 | |
| Restructuring and severance charges | | | (921 | ) | | | 133 | |
| Goodwill Impairment | | | 98,314 | | | | 3,472 | |
| Bad debt expense | | | 3,063 | | | | 190 | |
| Amortization of unearned income | | | (31 | ) | | | - | |
| Deferred income taxes | | | (9,609 | ) | | | 605 | |
| Loss on disposal of fixed assets | | | 1,828 | | | | 67 | |
| Changes in working capital accounts | | | | | | | | |
| Accounts receivable | | | 4,721 | | | | (10,525 | ) |
| Inventories | | | (3,436 | ) | | | (1,780 | ) |
| Other current assets | | | (667 | ) | | | (62 | ) |
| Net investment in leases | | | 808 | | | | 862 | |
| Accounts payable | | | (6,779 | ) | | | 22,850 | |
| Deferred revenue | | | (296 | ) | | | (488 | ) |
| Income tax payable | | | - | | | | (705 | ) |
| Employee compensation and benefits | | | (1,806 | ) | | | 3,005 | |
| Other, net | | | (4,603 | ) | | | (5,364 | ) |
| Net operating activities | | | (5,838 | ) | | | 16,865 | |
| Cash flows from investing activities: | | | | | | | | |
| Capital expenditures | | | (1,898 | ) | | | (1,172 | ) |
| Proceeds from redemption of certificates of deposit | | | - | | | | 2,682 | |
| Purchases of certificates of deposit | | | (27 | ) | | | (102 | ) |
| Payment for covenant not-to-compete | | | - | | | | (285 | ) |
| Acquisition of businesses | | | - | | | | (738 | ) |
| Net investing activities | | | (1,925 | ) | | | 385 | |
| Cash flows from financing activities: | | | | | | | | |
| Net payments of short-term borrowings | | | - | | | | (15,304 | ) |
| Proceeds from exercise of stock options | | | 96 | | | | 192 | |
| Purchase of treasury stock | | | (405 | ) | | | (1,350 | ) |
| Proceeds from issuance of common shares for employee stock purchase plan | | | 313 | | | | 303 | |
| Net financing activities | | | 4 | | | | (16,159 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | | (75 | ) | | | (5 | ) |
| Change in cash and cash equivalents | | | (7,834 | ) | | | 1,086 | |
| Cash and cash equivalents: | | | | | | | | |
| Beginning of period | | | 13,562 | | | | 1,486 | |
| End of period | | $ | 5,728 | | | $ | 2,572 | |
11
