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, 1997
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 (IRS 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 May 12,
1997 was 7,507,956.
POMEROY COMPUTER RESOURCES, INC.
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements: Page
______
Consolidated Balance 3
Sheets as of January 5,
1997 and April 5, 1997
Consolidated Statements of 4
Income for the Quarters
Ended April 5, 1996 and
1997
Consolidated Statements of 5
Cash Flows for the
Quarters Ended April 5,
1996 and 1997
Notes to Consolidated 6
Financial Statements
Item 2. Management's Discussion 8
and Analysis of Financial
Condition and Results of
Operations
Part II. Other Information 9
SIGNATURE 10
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
January 5, April 5,
1997 1997
ASSETS
Current assets:
Cash $6,809 $ 277
Accounts and note receivable, less allowance of $509 and $507
at January 5, and April 5, 1997, respectively 68,094 69,204
Inventories 23,426 31,334
Other 739 649
_______ _______
Total current assets 99,068 101,464
_______ _______
Equipment and leasehold improvements 13,076 14,031
Less accumulated depreciation 3,864 4,654
_______ _______
Net equipment and leasehold improvements 9,212 9,377
Other assets 13,100 13,413
_______ _______
Total assets $121,380 $124,254
======= =======
LIABILITIES AND EQUITY
Current liabilities:
Notes payable $907 $907
Accounts payable 40,343 34,647
Bank notes payable 24,146 5,262
Other current liabilities 6,469 7,923
_______ _______
Total current liabilities 71,865 48,739
_______ _______
Notes payable 2,189 1,764
Deferred income taxes 733 758
Equity:
Preferred stock ( no shares issued or outstanding)
Common stock ( 6,469 and 7,504 shares issued and outstanding
at January 5 and April 5, 1997, respectively) 65 75
Paid-in capital 34,402 57,834
Retained earnings 12,330 15,288
_______ _______
46,797 73,197
Less treasury stock, at cost (21 shares at January 5
and April 5, 1997, respectively) 204 204
_______ _______
Total equity 46,593 72,993
_______ _______
Total liabilities and equity $121,380 $124,254
<FN> ======= =======
See notes to consolidated financial statements
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
( In thousands, except per share amounts )
Quarter Ended
____________________
April 5, April 5,
1996 1997
_______ ________
Net sales and revenues $63,224 $100,366
Cost of sales and service 53,624 83,462
_______ ________
Gross profit 9,600 16,904
Operating expenses:
Selling, general and administrative 6,436 10,475
Rent 291 473
Depreciation 318 803
Amortization 98 212
_______ ________
Total operating expenses 7,143 11,963
_______ ________
Income from operations 2,457 4,941
Interest expense 435 367
Litigation settlement and related costs 4,392 -
Other income 93 48
_______ ________
Income (loss) before income tax (2,277) 4,622
Income tax expense (922) 1,664
_______ ________
Net income (loss) ($1,355) $2,958
======= ========
Weighted average shares outstanding:
Primary 4,117 7,100
Fully diluted 4,130 7,100
Net income (loss) per common share:
Primary ($0.33) $0.42
Fully diluted ($0.33) $0.42
<FN>
See notes to consolidated financial statements
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
( In thousands )
Quarter Ended
_____________________
April 5, April 5,
1996 1997
________ _________
Net cash flows provided by operating activities $4,688 ($9,692)
________ _________
Cash flows used in investing activities:
Capital expenditures (968) (954)
Acquisition of reseller (4,460) -
________ _________
Net investing activities (5,428) (954)
________ _________
Cash flows provided by (used in) financing activities:
Net borrowings (payments) on bank note 2,540 (18,884)
Payments on notes payable (1,088) (425)
Proceeds from secondary offering (330) 23,293
Proceeds from exercise of stock options 121 130
________ _________
Net financing activities 1,243 4,114
________ _________
Increase (decrease) in cash 503 (6,532)
Cash:
Beginning of period 596 6,809
________ _________
End of period $1,099 $277
======== =========
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, 1997. 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, 1997 are not necessarily
indicative of the results that may be expected for future
interim periods or for the year ending January 5, 1998.
2. Supplemental Cash Flow Disclosures
Supplemental disclosures with respect to cash flow information
and non-cash investing and financing activities are as
follows:
Quarter Ended
______________________
April 5, April 5,
1996 1997
___________ _________
Interest paid $405 $470
==== ====
Income taxes paid $572 $251
==== ====
Business combination
accounted for as purchase:
Assets acquired $14,830
Liabilities assumed (6,395)
Note payable (2,700)
Stock issued (1,275)
_______
Net cash paid $ 4,460
=======
Note issued and accrued
liabilities for litigation
settlement $ 3,300
=======
3. Stockholders' Equity
On February 28, 1997, the Company completed a secondary public
offering of 1.02 million shares of its common stock. The net
proceeds of $23.3 million were used to reduce amounts
outstanding under its line of credit. If this secondary
offering had been completed as of January 6, 1997, pro forma
primary and fully diluted earnings per share would have been
$0.38 for the first quarter of fiscal 1997. This computation
assumes no interest expense related to the credit line and the
issuance of only a sufficient number of shares to eliminate
the credit line at the beginning of fiscal 1997.
4. Income Taxes
The Company's effective tax rate was 36.0% in the first
quarter of 1997 compared to 40.5% in the first quarter of
1996. This decrease was attributable to state tax credits
earned as a result of the move to the new headquarters and
distribution center in fiscal 1996.
5. 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.
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" may constitute 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 $37.1 million, or 58.8%, to $100.4 million in the first
quarter of 1997 from $63.3 million in the first quarter of 1996.
This increase was attributable to acquisitions completed in 1996,
new regional offices, an increase in sales to existing and new
customers, and overall growth. Excluding acquisitions completed
in 1996 and new regional offices, total net sales and revenues
increased 29.0%. Sales of equipment and supplies increased $32.9,
million or 57.4%, to $90.2 million in the first quarter of 1997
from $57.3 million in the first quarter of 1996. Excluding
acquisitions completed in 1996 and new regional offices, sales of
equipment and supplies increased 27.1%. Service revenues
increased $4.2 million, or 70.0%, to $10.2 million in the first
quarter of 1996 from $6.0 million in the first quarter of 1996.
Excluding acquisitions completed in 1996 and new regional
offices, service revenues increased 46.7%.
GROSS MARGINS. Gross margin was 16.8% in the first quarter of
1997 compared to 15.2% in the first quarter of 1996. This
increase was partly a result of the increase in higher-margin
service revenues versus lower-margin sales of equipment and
supplies. The gross margin for services increased in the first
quarter of 1997, compared to the first quarter of 1996, as a
result of an increase in the mix of services to include more
higher-margin outsourcing. Gross margin for equipment sales in
the first quarter of 1997 increased in comparison to the first
quarter of 1996 as a result of better pricing through volume
purchases with major manufacturers. However, there was a
decrease in equipment gross margin for the first quarter of 1997
compared to the fourth quarter of 1996 due to an increase in
business with several lower-margin customers.
OPERATING EXPENSES. Selling, general and administrative
expenses (including rent expense) expressed as a percentage of
total net sales and revenues increased to 10.9% in the first
quarter of 1997 from 10.6% in the first quarter of 1996. This
increase is primarily attributable to the continued addition of
technical personnel to sustain the growth of the Company's
service business. As these personnel reach full productivity,
their cost as a percentage of total net sales and revenues should
decrease. In addition, market development funds, which reduce
selling, general and administrative expenses, have declined
during the first quarter of 1997 as a percentage of total net
sales and revenues compared to the first quarter of 1996. Market
development funds declined to 1.1% in the first quarter of 1997,
from 1.3% in the first quarter of 1996. Total operating expenses
expressed as a percentage of total net sales and revenues
increased to 11.9% in the first quarter of 1997 from 11.3% in the
first quarter of 1996, 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 acquisitions made in 1996.
INCOME FROM OPERATIONS. Income from operations increased $2.4
million, or 96.0%, to $4.9 million in the first quarter of 1997
from $2.5 million in the first quarter of 1996. The Company's
operating margin increased to 4.9% in the first quarter of 1997
from 3.9% in the first quarter of 1996 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 approximately $0.4
million in the first quarter of 1997 and 1996.
INCOME TAXES. The Company's effective tax rate was 36.0% in
the first quarter of 1997 compared to 40.5% in the first quarter
of 1996. This decrease was attributable to state tax credits
earned as a result of the move to the new headquarters and
distribution center in fiscal 1996.
NET INCOME. Net income, excluding the impact of the Vanstar
settlement, increased $1.7 million, or 135%, to $3.0 million in
the first quarter of 1997 from $1.3 million in the first quarter
of 1996 due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $9.7 million in the
first quarter of 1997. Cash used in investing activities was $0.9
million for capital expenditures. Cash provided by financing
activities included $23.3 million of net proceeds from the
issuance of 1.02 million shares of Common Stock in February 1997
and $0.1 million from the exercise of stock options less $18.9
million of repayments on bank notes payable and $0.4 million for
a note repayment.
A significant part of the Company's inventories is financed by
floor plan arrangements with third parties. At April 5, 1997,
these lines of credit totaled $37.0 million, including $12.0
million with IBM Credit Corporation (``ICC'') and $25.0 million
with Deutsche Financial Services ("DFS"). Borrowings under the
ICC floor plan arrangement are made on sixty day notes, with one-
half of the note amount due in thirty days. Borrowings under the
DFS floor plan arrangement are made on thirty day notes. All such
borrowings are secured by the related inventory. Financing on
many of the arrangements is interest free due to subsidies by
manufacturers. The average rate on the plans overall is less than
1.0% per annum. The Company classifies amounts outstanding under
the floor plan arrangements as accounts payable.
The Company's financing of receivables is provided through its
Credit Facility, which permits the Company to borrow up to the
lesser of $25.0 million or an amount based upon a formula of
eligible trade receivables. The Credit Facility carries a
variable interest rate based on (i) Star Bank's prime rate less
an incentive pricing spread (the " Incentive Pricing Spread")
based on certain financial ratios of the Company or (ii) LIBOR
plus the Incentive Pricing Spread, at the Company's election. The
Incentive Pricing Spread is adjusted quarterly. At April 5, 1997,
the amount outstanding, which consisted solely of overdrafts in
accounts with the Company's primary lender, was $5.3 million.
Currently, the Company does not have a balance outstanding under
the Credit Facility. Any amounts drawn on the Credit Facility
would have an interest rate of 7.75%. The Company is currently
negotiating an extension or replacement of the Credit Facility
which expired on April 30, 1997. An extension or replacement of
the Credit Facility is expected to be completed on similar or
improved terms during the second quarter of 1997. 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 prohibited from paying any cash dividends and is
subject to various restrictive covenants.
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 12
months.
POMEROY COMPUTER RESOURCES, INC.
PART II - OTHER INFORMATION
Items 1 to 5
None
Item 6 Exhibits and Reports on Form 8-K
Filed Herewith
(page #) or
Incorporated
(a) by Reference
Exhibits to:
11 (a)(23) Computation of Earnings
per Share E-1
(b) Reports on Form 8-K
The Company filed a Form 8-K dated February 19, 1997
reporting recent financial results in conjunction with the
filing of an amended registration statement on Form S-3 as of
the same date.
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 20, 1997 By: /s/ Edwin S. Weinstein
________________________________
Edwin S. Weinstein,
Vice President of Finance and
Principal Financial and
Accounting Officer