Exhibit 99.1
( BW)(KY-POMEROY-IT-SOLUTIONS)(PMRY) Pomeroy IT Solutions, Inc.
Reports Fourth Quarter and Full Year 2007 Results
Business Editors/Technology Editors
HEBRON, Ky.--(BUSINESS WIRE)--xx--Pomeroy IT Solutions, Inc. (NASDAQ:PMRY) an information technology ("IT") solutions provider with a comprehensive portfolio of hardware, software, technical staffing services, as well as infrastructure and lifecycle services, today reported fourth quarter revenue of $162.3 million, an increase of $11.7 million over the prior year, and a fourth quarter loss of $(21.4) million, which included a non-cash tax valuation charge of $16.2 million, compared to net income of $1.5 million for the quarter ended Jan 5, 2007.
The Company also reported fiscal 2007 revenue of $586.9 million compared to $593.0 million for fiscal 2006. The company incurred a net loss of $(112.2) million for fiscal 2007, which included a charge for goodwill impairment of $98.3 million, compared to net income of $1.1 million for fiscal 2006.
"Our fourth quarter financial performance, while disappointing, reflects a number of non-recurring charges associated with the settlement of certain litigation, the identification and resolution of two loss service contracts, severance and restructuring, and a one-time non-cash tax valuation charge of $16.2 million to reflect the estimated future utilization of deferred tax assets. From an operations perspective, we are continuing to take the necessary actions to improve the fiscal 2008 performance of our product and service businesses," said Keith Coogan, President and CEO of Pomeroy IT Solutions.
CONSOLIDATED FINANCIAL RESULTS
Fourth Quarter 2007 Financial Results
Total revenue in the fourth quarter of 2007 was $162.3 million compared to $150.6 million in the fourth quarter of 2006, an increase of $11.7 million or 7.7%.
Product Revenue:
Product revenue increased $7.7 million to $106.3 million compared to $98.6 million in the fourth quarter of fiscal 2006. During the fourth quarter of 2007 approximately 44% of our product revenue came from advanced product sales.
Service Revenue:
Service revenue was $56.0 million for the fourth quarter of 2007, an increase of $4.0 million from fiscal 2006 or 7.6%.
| (in millions) | | | | | | |
| Service Revenue: | | 2007 | | | 2006 | |
| Technical Staffing | | $ | 27.9 | | | $ | 19.6 | |
| Infrastructure Services | | | 28.1 | | | | 32.4 | |
Total Service Revenue | | $ | 56.0 | | | $ | 52.0 | |
Staffing service revenue increased $8.3 million compared to the fourth quarter of fiscal 2006, which was primarily the result of the conversion of our vendor management business. Staffing service revenue accounted for approximately 49.8% of our Service Revenue in the fourth quarter of fiscal 2007.
Infrastructure service revenue declined $4.3 million in the fourth quarter of fiscal 2007, compared to the fourth quarter 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. Infrastructure service revenue accounted for 50.2% of Services Revenue in the fourth quarter of 2007.
Gross Profit
Gross profit was $17.5 million in the fourth quarter of 2007 compared to $23.6 million in the fourth quarter of 2006. Gross profit, as a percentage of revenue, decreased to 10.8% in the fourth quarter of 2007 from 15.6% in the fourth quarter of 2006 due primarily to lower technical staffing service gross margins with the conversion of our vendor management business.
Product Gross Profit:
Product gross profit was $7.2 million in the fourth quarter of fiscal 2007 compared to $7.5 million in the fourth quarter of 2006. Gross profit margins decreased to 6.7% in the fourth quarter of fiscal 2007 from 7.6% in the fourth quarter of 2006. Product gross profit margin declined due to a short-term product incentive program that was put in place in the fourth quarter that will not been repeated.
Service Gross Profit:
Service gross profit was $10.4 million in the fourth quarter of 2007 compared to $16.0 million in the fourth quarter of 2006. Service gross profit, as a percent of revenue, decline as a result of revenue declines, an accrual of $2.0 million for loss contracts, lower consultant utilization rates, and the conversion of our vendor management business. As a result, service gross profit margins decreased to 18.5% in the fourth quarter of 2007 from 30.8% in the
fourth quarter of fiscal 2006.
Operating Expenses
Operating Expenses were $26.7 million in the fourth quarter of 2007 compared to $20.7 million in the fourth quarter of 2006 an increase of $6.0 million.
| Operating expenses: | | 2007 | | | 2006 | |
| Legal expense and provison for bad debts | | $ | 1.8 | | | $ | 1.2 | |
| Sales commission and earn-out accruals | | | 1.1 | | | | - | |
| Severance and Non-recoverable transition costs | | | 0.7 | | | | 0.1 | |
| Wage increase related to service support | | | 0.8 | | | | - | |
| Compensation expense - new executives and executive retention | | | 0.8 | | | | - | |
| Employee benefits and taxes | | | 0.6 | | | | - | |
| Other operating expenses | | | 20.9 | | | | 19.4 | |
Total operating expenses | | $ | 26.7 | | | $ | 20.7 | |
| | -- | The Company accrued legal costs and increased its allowance against trade and vendor receivables. |
| | -- | The Company revised its sales commission program effective for fiscal 2008 resulting in a one-time catch-up accrual for certain commissions to be paid in fiscal 2008. The Company also accrued for final payments due for two earn-out payments. |
| | -- | During the fourth quarter of fiscal 2007 the Company recorded severance charges related to work force reductions. The Company also recorded additional expense for non-recoverable transition costs on loss contracts. |
| | -- | Operating expense in the fourth quarter also increased due to costs related to additional service delivery support ($0.8 million), increases in employee benefits and taxes ($0.6 million) and compensation expense for new executive equity compensation and bonuses related to executive retention ($0.8 million). |
For the fourth quarter of fiscal 2007 net loss was $(21.4) million or $(1.74) per share compared to net income of $1.5 million or $0.12 per share in the fourth quarter of 2006. The change was a result of the factors described above as well as a non-cash tax valuation charge of $16.2 million.
| Other Financial Information | | | | |
| -- Debt | | $ | 0.0 | | million |
| -- Capital Expenditures | | $ | 3.6 | | million |
| -- Cash Flow From Operating Activities | | $ | 4.3 | | million |
| -- Purchases of Company stock | | $ | 1.4 | | million |
| -- Working Capital | | $ | 81.2 | | million |
| -- Cash, Cash Equivalents and CD's | | $ | 14.4 | | million |
Fiscal 2007 Financial Results
Revenue was $586.9 million in fiscal 2007 compared to $593.0 million in fiscal 2006, a decline of $6.1 million.
Product Revenue:
Product sales increased $13.4 million, an increase of 3.6% in fiscal 2007 as compared to fiscal 2006. Our product revenue growth came predominantly from advanced product sales.
Service Revenue:
Service sales were $200.3 million in fiscal 2007, a declined of $19.4 million or 8.9% from fiscal 2006.
| (in millions) | | | | | | |
| Service Revenue: | | Fiscal 2007 | | | Fiscal 2006 | |
| Technical Staffing | | $ | 87.2 | | | $ | 87.0 | |
| Infrastructure Services | | | 113.1 | | | | 132.7 | |
Total Service Revenue | | $ | 200.3 | | | $ | 219.7 | |
During fiscal 2007, staffing placements declined but were offset by increased revenue as a result of the transition of our vendor management business. In fiscal 2007, staffing service accounted for approximately 43.5% of total service revenues, compared to 39.6% in fiscal 2006.
The majority of the decline in infrastructure service revenue in fiscal 2007 relates to a reduction in deployment projects, time and material break-fix projects and customer attrition in our smaller market segments. Infrastructure service revenue was approximately 56.4% of total service revenue in fiscal 2007, compared to 60.3% in fiscal 2006.
Gross Profit
Gross profit was $84.0 million in fiscal 2007, or 14.3% of revenue, compared to $92.0 million, or 15.5% of revenue in fiscal 2006.
The product gross profit was $32.1 million or 8.3% of revenue in fiscal 2007, compared to $29.5 million, or 7.9% of revenue in fiscal 2006. The increase in product gross profit margins is due primarily to the higher volumes of advanced product sales and margin improvements as a result of initiatives put in place to promote stronger OEM partnerships.
Service gross profit was $51.9 million, or 25.9% in fiscal 2007, compared to $62.5 million, or 28.4% in fiscal 2006. The decline in service gross profit of $10.6 million was the result of lower service revenue, reduced personnel utilization rates and a charge of $2.0 million for loss contracts accrued in fiscal 2007.
Operating Expenses
Total operating expenses were $195.3 million in fiscal 2007, compared to $89.4 million in fiscal 2006, an increase of $105.9 million.
| (in millions) | | | | | | |
| Operating expenses: | | Fiscal 2007 | | | Fiscal 2006 | |
| Goodwill impairment | | $ | 98.3 | | | $ | 3.5 | |
| Replacement of enterprise reporting system | | | 2.1 | | | | - | |
| Settlement of outstanding lawsuits, claims and older receivables | | | 5.2 | | | | - | |
| Legal, consulting and settlement costs for corporate matters including the contested Proxy solicitation and other accruals | | | 1.2 | | | | - | |
| Severance | | | 0.4 | | | | 0.1 | |
| Provision for bad debts | | | 3.5 | | | | 1.7 | |
| Other operating expenses | | | 84.6 | | | | 84.1 | |
Total operating expenses | | $ | 195.3 | | | $ | 89.4 | |
| | -- | During the third quarter the Company recorded a goodwill impairment charge. |
| | -- | In fiscal 2007, the Company initiated a project to replace its enterprise reporting system. 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. |
| | -- | The Company resolved several outstanding lawsuits, claims and charged off certain older receivables in fiscal 2007. |
| | -- | The Company made payments related to legal, consulting and settlement costs for corporate matters including the contested Proxy solicitation and other accruals. |
| | -- | The Company recorded severance charges in fiscal 2007, for realignment of the structure of the Company's internal organization. |
| | -- | The Company increased its bad debt reserve reflecting its history of charge-off and the current composition of its accounts receivable portfolio. |
Net Income (Loss)
Net loss was $112.2 million in fiscal 2007, compared to net income of $1.1 million in fiscal 2006. The change reflects the factors described above.
CONFERENCE CALL
To participate in a conference call and questions and answer session with senior management regarding the fourth quarter and full year fiscal 2007 results, call 1-877-842-7108, using pass code 39929295 at 9:00 a.m. (EDT) on Thursday, March 20, 2008. 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) | | | | | | | | | |
| | | Fiscal Year Ended January 5, 2008 | |
| | | | | | Basic | | | Diluted | |
| | | Net | | | Earnings | | | Earnings | |
| | | Loss | | | Per Share | | | Per Share | |
| | | | | | | | | | |
| As reported GAAP financial measures | | $ | (112,233 | ) | | $ | (9.10 | ) | | $ | (9.10 | ) |
| | | | | | | | | | | | | |
| Adjustments: | | | | | | | | | | | | |
| Goodwill impairment | | | 98,314 | | | | 7.97 | | | | 7.97 | |
| Severance, settlement of lawsuits and claims | | | 5,538 | | | | 0.45 | | | | 0.45 | |
| Loss contracts | | | 2,393 | | | | 0.19 | | | | 0.19 | |
| Software abandonment and replacement plan | | | 2,081 | | | | 0.17 | | | | 0.17 | |
| Legal, consulting and Proxy settlement costs | | | 1,156 | | | | 0.09 | | | | 0.09 | |
| Income tax effect on non-GAAP adjustments and applying the same current year effective rate to prior year | | | 1,937 | | | | 0.15 | | | | 0.15 | |
Total adjustments | | | 111,419 | | | | 9.03 | | | | 9.03 | |
| | | | | | | | | | | | | |
| Non-GAAP financial measures | | $ | (814 | ) $ | | | (0.07 | ) $ | | | (0.07 | ) |
| | | Fiscal Year Ended January 5, 2007 | |
| | | | | | Basic | | | Diluted | |
| | | Net | | | Earnings | | | Earnings | |
| | | Income | | | Per Share | | | Per Share | |
| | | | | | | | | | |
| As reported GAAP financial measures | | $ | 1,143 | | | $ | 0.09 | | | $ | 0.09 | |
| | | | | | | | | | | | | |
| Adjustments: | | | | | | | | | | | | |
| Goodwill impairment | | | 3,472 | | | | 0.27 | | | | 0.27 | |
| Severance | | | 133 | | | | 0.01 | | | | 0.01 | |
| Income tax effect on non-GAAP adjustments and applying the same current year effective rate to prior year | | | (1,346 | ) | | | (0.11 | ) | | | (0.11 | ) |
Total adjustments | | | 2,259 | | | | 0.18 | | | | 0.18 | |
| | | | | | | | | | | | | |
| Non-GAAP financial measures | | $ | 3,402 | | | $ | 0.27 | | | $ | 0.27 | |
| | | Three Months Ended January 5, 2008 | |
| | | | | | Basic | | | Diluted | |
| | | Net | | | Earnings | | | Earnings | |
| | | Income | | | Per Share | | | Per Share | |
| | | | | | | | | | |
| As reported GAAP financial measures | | $ | (21,411 | ) | | $ | (1.74 | ) | | $ | (1.74 | ) |
| | | | | | | | | | | | | |
| Adjustments: | | | | | | | | | | | | |
| Settlement of lawsuit and claims | | | 1,875 | | | | 0.15 | | | | 0.15 | |
| Severance | | | 355 | | | | 0.03 | | | | 0.03 | |
| Loss contracts | | | 2,393 | | | | 0.19 | | | | 0.19 | |
| Income tax effect on non-GAAP adjustments and applying the same current year effective rate to prior year | | | 14,092 | | | | 1.15 | | | | 1.15 | |
Total adjustments | | | 18,715 | | | | 1.52 | | | | 1.52 | |
| | | | | | | | | | | | | |
| Non-GAAP financial measures | | $ | (2,696 | ) | | $ | (0.22 | ) | | $ | (0.22 | ) |
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
| (in thousands) | | January 5, | | | January 5, | |
| | | 2008 | | | 2007 | |
| ASSETS | | | | | | |
| | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 13,282 | | | $ | 13,562 | |
| Certificates of deposit | | | 1,113 | | | | 1,076 | |
| | | | | | | | | |
| Accounts receivable: | | | | | | | | |
| Trade, less allowance of $3,522 and $4,390, respectively | | | 140,167 | | | | 139,225 | |
| Vendor, less allowance of $562 and $155, respectively | | | 11,352 | | | | 8,095 | |
| Net investment in leases | | | 756 | | | | 1,587 | |
| Other | | | 1,288 | | | | 1,017 | |
| Total receivables | | | 153,563 | | | | 149,924 | |
| | | | | | | | | |
| Inventories | | | 15,811 | | | | 16,274 | |
| Other | | | 10,196 | | | | 11,141 | |
| Total current assets | | | 193,965 | | | | 191,977 | |
| | | | | | | | | |
| Equipment and leasehold improvements: | | | | | | | | |
| Furniture, fixtures and equipment | | | 15,180 | | | | 22,540 | |
| Leasehold Improvements | | | 7,262 | | | | 8,459 | |
| Total | | | 22,442 | | | | 30,999 | |
| | | | | | | | | |
| Less accumulated depreciation | | | 12,645 | | | | 18,406 | |
| | | | | | | | | |
Net equipment and leasehold improvements | | | 9,797 | | | | 12,593 | |
| | | | | | | | | |
| Net investment in leases, net of current portion | | | - | | | | 42 | |
| Goodwill | | | - | | | | 98,314 | |
| Intangible assets, net | | | 2,017 | | | | 2,634 | |
| Other assets | | | 805 | | | | 3,403 | |
| Total assets | | $ | 206,584 | | | $ | 308,963 | |
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
| (in thousands) | | January 5, | | | January 5, | |
| | | 2008 | | | 2007 | |
| LIABILITIES AND EQUITY | | | | | | |
| | | | | | | |
| Current Liabilities: | | | | | | |
| Accounts payable: | | | | | | |
| Floor plan financing | | $ | 26,328 | | | $ | 17,226 | |
| Trade | | | 57,016 | | | | 57,500 | |
| Total accounts payable | | | 83,344 | | | | 74,726 | |
| | | | | | | | | |
| Deferred revenue | | | 1,949 | | | | 2,604 | |
| Employee compensation and benefits | | | 10,248 | | | | 8,642 | |
| Accrued facility closing cost and severance | | | 1,678 | | | | 1,286 | |
| Other current liabilities | | | 15,542 | | | | 14,412 | |
| Total current liabilities | | | 112,761 | | | | 101,670 | |
| | | | | | | | | |
| Accrued facility closing cost and severance | | | 1,056 | | | | 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, respectively) | | | 140 | | | | 137 | |
| Paid-in capital | | | 91,399 | | | | 89,992 | |
| Accumulated other comprehensive income | | | 20 | | | | 15 | |
| Retained earnings | | | 14,200 | | | | 126,433 | |
| | | | 105,759 | | | | 216,577 | |
| | | | | | | | | |
| Less treasury stock, at cost (1,323 and 1,130 shares, respectively) | | | 12,992 | | | | 11,597 | |
| Total equity | | | 92,767 | | | | 204,980 | |
| Total liabilities and equity | | $ | 206,584 | | | $ | 308,963 | |
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| (in thousands, except per share data) | | Fiscal Years Ended | |
| | | January 5, | | | January 5, | | | January 5, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | Non-GAAP | | | | | | Non-GAAP | | | | | | Non-GAAP | |
| Net revenues: | | | | | | | | | | | | | | | | | | |
| Product | | $ | 386,605 | | | $ | 386,605 | | | $ | 373,232 | | | $ | 373,232 | | | $ | 483,431 | | | $ | 483,431 | |
| Service | | | 200,302 | | | | 200,302 | | | | 219,749 | | | | 219,749 | | | | 200,239 | | | | 200,239 | |
| Total revenues | | | 586,907 | | | | 586,907 | | | | 592,981 | | | | 592,981 | | | | 683,670 | | | | 683,670 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
| Product | | | 354,528 | | | | 354,408 | (b) | | | 343,689 | | | | 343,689 | | | | 447,383 | | | | 447,383 | |
| Service | | | 148,394 | | | | 146,383 | (b) | | | 157,256 | | | | 157,256 | | | | 144,557 | | | | 144,557 | |
| Total cost of revenues | | | 502,922 | | | | 500,791 | | | | 500,945 | | | | 500,945 | | | | 591,940 | | | | 591,940 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | 83,985 | | | | 86,116 | | | | 92,036 | | | | 92,036 | | | | 91,730 | | | | 91,730 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 92,251 | | | | 83,469 | (b) | | | 80,973 | | | | 80,840 | | | | 85,993 | | | | 85,993 | |
| Depreciation and amortization | | | 4,687 | | | | 4,432 | | | | 4,894 | | | | 4,894 | | | | 5,585 | | | | 5,585 | |
| Goodwill impairment | | | 98,314 | | | | - | (b) | | | 3,472 | | | | - | (b) | | | 16,000 | | | | - | (b) |
| | | 195,252 | | | | 87,901 | | | | 89,339 | | | | 85,734 | | | | 107,578 | | | | 91,578 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | | (111,267 | ) | | | (1,785 | ) | | | 2,697 | | | | 6,302 | | | | (15,848 | ) | | | 152 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | 908 | | | | 908 | | | | 582 | | | | 582 | | | | 193 | | | | 193 | |
| Interest expense | | | (457 | ) | | | (457 | ) | | | (1,149 | ) | | | (1,149 | ) | | | (1,028 | ) | | | (1,028 | ) |
Interest income (expense) | | | 451 | | | | 451 | | | | (567 | ) | | | (567 | ) | | | (835 | ) | | | (835 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before income tax | | | (110,816 | ) | | | (1,334 | ) | | | 2,130 | | | | 5,735 | | | | (16,683 | ) | | | (683 | ) |
| Income tax expense (benefit) (c) | | | 1,417 | | | | (520 | ) | | | 987 | | | | 2,333 | | | | (6,021 | ) | | | (247 | ) |
| Net income (loss) | | $ | (112,233 | ) | | $ | (814 | ) | | $ | 1,143 | | | $ | 3,402 | | | $ | (10,662 | ) | | $ | (436 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 12,331 | | | | 12,331 | | | | 12,570 | | | | 12,570 | | | | 12,554 | | | | 12,554 | |
| Diluted (a) | | | 12,331 | | | | 12,331 | | | | 12,659 | | | | 12,659 | | | | 12,554 | | | | 12,668 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (loss) per common share: | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (9.10 | ) | | $ | (0.07 | ) | | $ | 0.09 | | | $ | 0.27 | | | $ | (0.85 | ) | | $ | (0.03 | ) |
| Diluted (a) | | $ | (9.10 | ) | | $ | (0.07 | ) | | $ | 0.09 | | | $ | 0.27 | | | $ | (0.85 | ) | | $ | (0.03 | ) |
(a) Dilutive loss per common share for the year ended January 5, 2008 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.
(b) See discussion above on non-GAAP Financial Measures.
(c) Includes the impact of a non cash valuation charge of $16,173.
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| (in thousands,except per share data) | | Three Months Ended | |
| | | January 5, | | | January 5, | |
| | | 2008 | | | 2007 | |
| | | | | | Non-GAAP | | | | |
| Net revenues: | | | | | | | | | |
| Product | | $ | 106,299 | | | $ | 106,299 | | | $ | 98,596 | |
| Service | | | 55,962 | | | | 55,962 | | | | 52,006 | |
| Total revenues | | | 162,261 | | | | 162,261 | | | | 150,602 | |
| | | | | | | | | | | | | |
| Cost of revenues: | | | | | | | | | | | | |
| Product | | | 99,135 | | | | 99,015 | (b) | | | 91,076 | |
| Service | | | 45,596 | | | | 43,585 | (b) | | | 35,971 | |
| Total cost of revenues | | | 144,731 | | | | 142,600 | | | | 127,047 | |
| | | | | | | | | | | | | |
| Gross profit | | | 17,530 | | | | 19,661 | | | | 23,555 | |
| | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | |
| Selling, general and administrative | | | 25,640 | | | | 23,148 | (b) | | | 19,604 | |
| Depreciation and amortization | | | 1,051 | | | | 1,051 | | | | 1,075 | |
| Total operating expenses | | | 26,691 | | | | 24,199 | | | | 20,679 | |
| | | | | | | | | | | | | |
| Income (loss) from operations | | | (9,161 | ) | | | (4,538 | ) | | | 2,876 | |
| | | | | | | | | | | | | |
| Interest income | | | 209 | | | | 209 | | | | (152 | ) |
| Interest expense | | | (90 | ) | | | (90 | ) | | | 243 | |
| Interest, net | | | 119 | | | | 119 | | | | 91 | |
| | | | | | | | | | | | | |
| Income (loss) before income tax | | | (9,042 | ) | | | (4,419 | ) | | | 2,785 | |
| Income tax expense (benefit) (c) | | | 12,369 | | | | (1,723 | ) | | | 1,242 | |
| Net income (loss) | | $ | (21,411 | ) | | $ | (2,696 | ) | | $ | 1,543 | |
| | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | |
| Basic | | | 12,310 | | | | 12,310 | | | | 12,449 | |
| Diluted | | | 12,310 | | | | 12,310 | | | | 12,627 | |
| | | | | | | | | | | | | |
| Earnings per common share: | | | | | | | | | | | | |
| Basic | | $ | (1.74 | ) | | $ | (0.22 | ) | | $ | 0.12 | |
| Diluted(a) | | $ | (1.74 | ) | | $ | (0.22 | ) | | $ | 0.12 | |
(a) Dilutive loss per common share for the quarter ended January 5, 2008 would have been anti-dilutive if the number of weighted average shares outstanding were adjusted to reflect the dilutive effect of outstanding stock options.
(b) See discussion above on non-GAAP Financial Measures.
(c) Includes the impact of a non cash valuation charge of $16,173.
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| (in thousands) | | Fiscal Years Ended January 5 | |
| | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | | |
| Net income (loss) | | $ | (112,233 | ) | | $ | 1,143 | | | $ | (10,662 | ) |
Adjustments to reconcile net income to net cash from (used in) operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | 5,018 | | | | 4,926 | | | | 5,597 | |
| Stock option, restricted stock compensation and employee purchase plan expense | | | 988 | | | | 1,571 | | | | 68 | |
| Restructuring and severance charges | | | (865 | ) | | | 133 | | | | 2,305 | |
| Goodwill impairment | | | 98,314 | | | | 3,472 | | | | 16,000 | |
| Provision for doubtful accounts | | | 3,528 | | | | 1,690 | | | | 2,000 | |
| Amortization of unearned income | | | (34 | ) | | | (66 | ) | | | (161 | ) |
| Deferred income taxes | | | 1,256 | | | | 153 | | | | (4,038 | ) |
| Loss on disposal of fixed assets | | | 1,953 | | | | 287 | | | | 15 | |
| Changes in working capital accounts | | | | | | | | | | | | |
| Accounts receivable | | | (7,647 | ) | | | (8,215 | ) | | | 9,186 | |
| Inventories | | | 463 | | | | (2,609 | ) | | | 1,882 | |
| Other current assets | | | 1,269 | | | | 1,818 | | | | (2,585 | ) |
| Net investment in leases | | | 908 | | | | 1,417 | | | | 2,949 | |
| Floor plan financing | | | 9,102 | | | | 1,775 | | | | (3,943 | ) |
| Accounts payable trade | | | (484 | ) | | | 25,962 | | | | (21,479 | ) |
| Deferred revenue | | | (655 | ) | | | (840 | ) | | | (46 | ) |
| Income tax payable | | | - | | | | (148 | ) | | | 95 | |
| Other, net | | | 3,413 | | | | (2,368 | ) | | | (1,611 | ) |
| Net operating activities | | | 4,294 | | | | 30,101 | | | | (4,428 | ) |
| Cash flows from investing activities: | | | | | | | | | | | | |
| Capital expenditures | | | (3,572 | ) | | | (2,261 | ) | | | (3,454 | ) |
| Proceeds from sale of fixed assets | | | 2 | | | | - | | | | 6 | |
| Proceeds from redemption of certificates of deposit | | | 2,164 | | | | 2,682 | | | | - | |
| Purchases of certificates of deposit | | | (2,201 | ) | | | (129 | ) | | | (81 | ) |
| Payment for covenant not-to-compete | | | - | | | | (285 | ) | | | - | |
| Acquisition of businesses | | | - | | | | (738 | ) | | | (1,256 | ) |
| Net investing activities | | | (3,607 | ) | | | (731 | ) | | | (4,785 | ) |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Payments of acquisition notes payable | | | - | | | | - | | | | (662 | ) |
| Net payments of short-term borrowings | | | - | | | | (15,304 | ) | | | (4,849 | ) |
| Proceeds from exercise of stock options | | | 96 | | | | 174 | | | | 2,194 | |
| Excess tax benefit related to exercise of stock options | | | 13 | | | | 16 | | | | - | |
| Purchase of treasury stock | | | (1,395 | ) | | | (2,475 | ) | | | (376 | ) |
| Proceeds from issuance of common shares for employee stock purchase plan | | | 313 | | | | 304 | | | | 169 | |
| Net financing activities | | | (973 | ) | | | (17,285 | ) | | | (3,524 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | | 6 | | | | (9 | ) | | | 102 | |
| Change in cash and cash equivalents | | | (280 | ) | | | 12,076 | | | | (12,635 | ) |
| Cash and cash equivalents: | | | | | | | | | | | | |
| Beginning of period | | | 13,562 | | | | 1,486 | | | | 14,121 | |
| End of period | | $ | 13,282 | | | $ | 13,562 | | | $ | 1,486 | |
| CONTACT: | Pomeroy IT Solutions, Inc. |
Kevin Gregory, Sr. Vice President
and Chief Financial Officer
859-586-0600 x 1424
kgregory@pomeroy.com
