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 July 5, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20022
POMEROY COMPUTER RESOURCES, INC.
________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 31-1227808
________ __________
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1020 Petersburg Road, Hebron, KY 41048
______________________________________
(Address of principal executive offices)
(606) 586-0600
______________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such requirements
for the past 90 days.
YES ___X___NO___
The number of shares of common stock outstanding as of July 31,
1998 was 11,526,245.
POMEROY COMPUTER RESOURCES, INC.
TABLE OF CONTENTS
Part I. Financial
Information
Item 1. Financial Statements: Page
____
Consolidated Balance 3
Sheets as of January 5,
1998 and July 5, 1998
Consolidated Statements of 4
Income for the Quarters
Ended July 5, 1998 and
1997
Consolidated Statements of 5
Income for the Six Months
Ended July 5, 1998 and
1997
Consolidated Statements of 6
Cash Flows for the Six
Months Ended July 5, 1998
and 1997
Notes to Consolidated 7
Financial Statements
Item 2. Management's Discussion 9
and Analysis of Financial
Condition and Results of
Operations
Part II. Other Information 12
SIGNATURE 13
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
( In thousands)
January 5, July 5,
1998 1998
_________ _________
ASSETS Current assets:
Cash $ 380 $ 2,018
Accounts and note receivable, less
allowance of $578 and $787 at January 5,
and July 5, 1998, respectively 99,707 132,329
Inventories 39,160 33,941
Other 816 2,283
_________ _________
Total current assets 140,063 170,571
_________ _________
Equipment and leasehold improvements 17,316 21,108
Less accumulated depreciation 6,770 8,562
_________ _________
Net equipment and leasehold improvements 10,546 12,546
Other assets 16,655 25,559
_________ _________
Total assets $ 167,264 $ 208,676
========= =========
LIABILITIES AND EQUITY
Current liabilities:
Notes payable $ 2,077 $ 2,456
Accounts payable 40,038 53,327
Bank notes payable 22,611 41,333
Other current liabilities 12,309 7,873
_________ _________
Total current liabilities 77,035 104,989
Notes payable 1,434 3,780
Deferred income taxes 18 450
Equity:
Preferred stock (no shares
issued or outstanding) - -
Common stock (11,402 and 11,507 shares
issued and outstanding at January 5
and July 5, 1998, respectively) 114 115
Paid-in capital 60,226 61,620
Retained Earnings 28,641 37,926
_________ _________
88,981 99,661
Less treasury stock, at cost (21 shares
at January 5 and July 5, 1998, respectively) 204 204
_________ _________
Total equity 88,777 99,457
Total liabilities and equity $ 167,246 $ 208,676
========= =========
<FN>
See notes to consolidated financial statements.
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
( In thousands, except per share amounts)
Quarter Ended
________________________
July 5, July 5,
1997 1998
__________ __________
Net sales and revenues $ 118,218 $ 158,843
Cost of sales and service 99,083 131,573
__________ __________
Gross profit 19,135 27,270
Operating expenses:
Selling, general
and administrative 11,297 16,445
Rent expense 446 626
Depreciation 700 954
Amortization 223 453
__________ __________
Total operating expenses 12,666 18,478
__________ __________
Income from operations 6,469 8,792
Interest expense 99 877
Other expense (income) 169 (33)
__________ __________
Income before income tax 6,201 7,948
Income tax expense 2,232 2,940
__________ __________
Net income $ 3,969 $ 5,008
========== ==========
Weighted average shares outstanding:
Basic 11,231 11,450
Diluted 11,521 11,804
Earnings per common share:
Basic $ 0.35 $ 0.44
Diluted $ 0.34 $ 0.42
<FN>
See notes to consolidated financial statements.
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
( In thousands, except per share amounts)
Six Months Ended
________________________
July 5, July 5,
1997 1998
__________ __________
Net sales and revenues $ 218,584 $ 294,041
Cost of sales and service 182,545 243,538
__________ __________
Gross profit 36,039 50,503
Operating expenses:
Selling, general
and administrative 21,772 30,765
Rent expense 919 1,188
Depreciation 1,503 1,806
Amortization 435 762
__________ __________
Total operating expenses 24,629 34,521
__________ __________
Income from operations 11,410 15,982
Interest expense 466 1,301
Other income 121 (56)
__________ __________
Income before income tax 10,823 14,737
Income tax expense 3,896 5,452
__________ __________
Net income $ 6,927 $ 9,285
========== ==========
Weighted average shares outstanding:
Basic 10,783 11,421
Diluted 11,085 11,758
Earnings per common share:
Basic $ 0.64 $ 0.81
Diluted $ 0.62 $ 0.79
<FN>
See notes to consolidated financial statements.
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
________________________
July 5, July 5,
1997 1998
__________ __________
Net cash flows used in operating activities $ (14,711) $ (4,622)
__________ __________
Cash flows used in investing activities:
Capital expenditures (1,180) (1,932)
Acquisition of resellers (1,958) (11,229)
__________ __________
Net investing activities (3,138) (13,161)
__________ __________
Cash flows provided by (used in)
financing activities:
Net borrowings (payments) on bank note (11,832) 18,722
Payment of note payable (425) (696)
Proceeds from secondary offering 23,262 -
Proceeds from exercise of stock options 130 1,395
__________ __________
Net financing activities 11,135 19,421
__________ __________
Increase (decrease) in cash (6,714) 1,638
Cash:
Beginning of period 6,809 380
__________ __________
End of period $ 95 $ 2,018
========== ==========
<FN>
See notes to consolidated financial statements.
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, 1998. 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
six-month period ended July 5, 1998 are not necessarily
indicative of the results that may be expected for future
interim periods or for the year ending January 5, 1999.
2. Borrowing Arrangements
At January 5 and July 5, 1998, bank notes payable include
$6.5 million and $12.1 million, respectively, of overdrafts in
accounts with the Company's primary lender. 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)
Quarter ended July 5,
______________________________________
1997 1998
__________________ __________________
Per Share Per Share
Shares Amount Shares Amount
________ _________ ________ _________
Basic EPS 11,231 $ 0.35 11,450 $ 0.44
Effect of dilutive
stock options 290 (0.01) 354 (0.02)
________ _________ ________ _________
Diluted EPS 11,521 $ 0.34 11,804 $ 0.42
======== ========= ======== =========
Six Months ended July 5,
______________________________________
1997 1998
__________________ __________________
Per Share Per Share
Shares Amount Shares Amount
________ _________ ________ _________
Basic EPS 10,783 $ 0.64 11,421 $ 0.81
Effect of dilutive
stock options 302 (0.02) 337 (0.02)
________ _________ ________ _________
Diluted EPS 11,085 $ 0.62 11,758 $ 0.79
======== ========= ======== =========
4. Supplemental Cash Flow Disclosures
Supplemental disclosures with respect to cash flow information
and non-cash investing and financing activities are as
follows:
Six Months Ended
____________________________________
July 5, 1997 July 5, 1998
____________ ____________
Interest paid $470 $1,045
==== ======
Income taxes paid $251 $9,353
==== ======
Business combinations
accounted for as purchases:
Assets acquired $31,734
Liabilities assumed 18,505
Notes payable 2,000
_______
Net cash paid $11,229
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.
6. Subsequent Event
On July 14, 1998 the Company finalized a $120 million credit
facility with Deutsche Financial Services Corp (" DFS"). This
credit facility provides a credit line of $60.0 million for
inventory financing and $60.0 million for accounts receivable
financing. The inventory financing portion of the credit
facility will continue to utilize thirty day notes and
provide interest free financing due to subsidies
by manufacturers. The credit facility can be amended, with
proper notification,if the thirty day interest free subsidies
provided by manufacturers are revised. The accounts receivable
portion of the credit facility carries a variable interest
rate based on the prime rate less 125 basis points. The
credit facility will be 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 will be subject to
various financial covenants.
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 $40.6 million, or 34.4%, to $158.8 million in the
second quarter of 1998 from $118.2 million in the second
quarter of 1997. This increase was attributable to
acquisitions completed in fiscal years 1998 and 1997 and an
increase in sales to existing and new customers. Excluding
acquisitions completed in fiscal years 1998 and 1997, total
net sales and revenues increased 12.7%. Sales of equipment and
supplies increased $33.5 million, or 31.4%, to $140.1 million
in the second quarter of 1998 from $106.6 million in the
second quarter of 1997. Excluding acquisitions completed in
fiscal years 1998 and 1997, sales of equipment and supplies
increased 9.3%. Service revenues increased $7.1 million, or
61.2%, to $18.7 million in the second quarter of 1998 from
$11.6 million in the second quarter of 1997. Excluding
acquisitions completed in fiscal years 1998 and 1997, service
revenues increased 43.9%.
Total net sales and revenues increased $75.4 million, or
34.5%, to $294.0 million in the first half of 1998 from $218.6
million in the first half of 1997. Excluding acquisitions
completed in fiscal years 1998 and 1997, total net sales and
revenues increased 19.2%. Sales of equipment and supplies
increased $61.7 million, or 31.3%, to $258.6 million in the
first half of 1998 from $196.9 million in the first half of
1997. Excluding acquisitions completed in fiscal years 1998
and 1997, sales of equipment and supplies increased 16.1%.
Service and other revenues increased $13.7 million, or 63.1%,
to $35.4 million in the first half of 1998 from $21.7 million
in the first half of 1997. Excluding acquisitions completed in
fiscal years 1998 and 1997, service and other revenues
increased 48.0%.
GROSS MARGIN. Gross margin was 17.2 % in the second quarter of
1998 compared to 16.2% in the second quarter of 1997. This
improved gross margin in the second quarter of 1998 can be
attributed to an increase in the percentage of higher-margin
service revenues. Service revenues as a percentage of total
net sales increased to 11.8% in the second quarter of fiscal
1998 compared to 9.8% in the second quarter of fiscal 1997.
Factors that may have an impact on gross margin in the future
include the percentage of equipment sales with lower-margin
customers and the ratio of service revenues to total net sales
and revenues.
Gross profit as a percentage of sales was 17.2% in the first
half of fiscal 1998 compared to 16.5% in the first half of
fiscal 1997. This improved gross margin in the first half of
fiscal 1998 can be attributed to an increase in higher-margin
service revenues as a percentage of total net sales. Service
revenues as a percentage of total net sales increased to 12.0%
in the first half of fiscal 1998 compared to 9.9% in the first
half of fiscal 1997.
OPERATING EXPENSES. Selling, general and administrative
expenses (including rent expense) expressed as a percentage of
total net sales and revenues increased to 10.8% and 10.9% for
the second quarter and first half of fiscal 1998,
respectively, from 9.9% and 10.4% in the second quarter and
first half of fiscal 1997, respectively. Excluding
acquisitions completed in fiscal years 1998 and 1997, selling,
general and administrative expenses expressed as a percentage
of total net sales and revenues would have been 10.2% and
10.4% in the second quarter and first half of fiscal 1998,
respectively. Total operating expenses expressed as a
percentage of total net sales and revenues increased to 11.6%
and 11.7% in the second quarter and first half of 1998,
respectively, from 10.7% and 11.3% in the second quarter and
first half of 1997, respectively. Excluding acquisitions
completed in fiscal years 1998 and 1997, total operating
expenses expressed as a percentage of total net sales and
revenues would have been 11.0% and 11.2% in the second quarter
and first half of fiscal 1998, respectively.
INCOME FROM OPERATIONS. Income from operations increased $2.3
million, or 35.4%, to $8.8 million in the second quarter of
fiscal 1998 from $6.5 million in the second quarter of fiscal
1997. The Company's operating margin remained at 5.5% in the
second quarter of fiscal 1998 as compared to the same period
in fiscal 1997.
Income from operations increased $4.6 million, or 40.4%, to
$16.0 million in the first half of fiscal 1998 from $11.4
million in the first half of fiscal 1997. Operating margin
increased to 5.4% in the first half of fiscal 1998 as compared
to 5.2% in fiscal 1997 as the increase in gross margin offset
the increase in operating expenses as a percent of net sales
and revenues.
INTEREST EXPENSE. Interest expense was $0.9 million and $1.3
million in the second quarter and first half of fiscal 1998
compared with $0.1 million and $0.5 million in the second
quarter and first half of fiscal 1997. This increase in the
second quarter and first half of 1998 from the comparable
periods in fiscal 1997 is due to higher average debt
outstanding primarily as a result of increased cash needs for
acquisitions.
INCOME TAXES. The Company's effective tax rate was 37.0% in
the second quarter and first half of fiscal 1998 compared to
36.0% in the second quarter and first half of fiscal 1997.
NET INCOME. Net income increased $1.0 million, or 25.0%, to
$5.0 million in the second quarter of fiscal 1998 from $4.0
million in the second quarter of fiscal 1997. This increase
was a result of the factors described previously. Net income
increased $2.4 million, or 34.8%, to $9.3 million in the first
half of fiscal 1998 from $6.9 million in the first half of
fiscal 1997. This increase was a result of the factors
described previously.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $4.6 million in the
first half of fiscal 1998. Cash used in investing activities
included $11.2 million for acquisitions and $1.9 million for
capital expenditures. Cash provided by financing activities
included $18.7 million of net borrowings on bank notes payable
and $1.4 million from the exercise of stock options less $0.7
million of repayments on various notes payable.
A significant part of the Company's inventories is ffiinnanced by
floor plan arrangements with third parties. At July 5, 1998,
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 substantially all of the
arrangements is interest free due to subsidies by
manufacturers. The average interest 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.
On July 14, 1998, the Company finalized a $120.0 million line
of credit with DFS. This credit facility provides a credit
line of $60.0 million for inventory financing and $60.0
million for accounts receivable financing. The inventory
financing portion of the credit facility will continue to
utilize thirty day notes and provide interest free
financing due to subsidies by manufacturers. The credit
facility can be amended, with proper notification, if the
thirty day interest free subsidies provided by manufacturers
are revised. Any change in the subsidies provided by
manufacturers could increase the financing costs of the
Company. The accounts receivable portion of the credit
facility carries a variable interest rate based on the prime
rate less 125 basis points. The credit facility will be
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 will be subject to various financial
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.
OTHER
The Company is heavily dependent upon complex computer systems
for all phases of its operations, which include sales and
distribution. The Company began addressing the affect of the
Year 2000 compliance issue in 1996. The Year 2000 date issue
arises from the fact that many computer programs use only two
digits to identify a year in a date field. The Company has
completed an assessment of its own systems and determined that
its principle systems are Year 2000 compliant. Management does
not expect that any costs associated with the Company becoming
Year 2000 compliant will have a material adverse impact on the
Company's financial position, results of operations or cash
flows. The Company is continuing to assess the Year 2000 issue
with respect to its customers and suppliers. The Company could
be adversely impacted by the Year 2000 date issue if its
suppliers, customers and other businesses do not address this
issue successfully. Management continues to assess these risks
in order to be able to respond in a manner which would reduce
any impact on the Company.
PART II - OTHER INFORMATION
Items 1 to 5 None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
____________
11 Computation of Per
Share Earnings
27 Financial Data Schedule
(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: August 11, 1998 By: /s/ Stephen E. Pomeroy
Stephen E. Pomeroy
Chief Financial Officer and
Chief Accounting Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>2
<TEXT>
Pomeroy Computer Resources, Inc.
Exhibit 11 - Computation of Earnings Per Share
(in thousands, except per share data)
Quarter ended July 5,
______________________________________
1997 1998
__________________ __________________
Per Share Per Share
Shares Amount Shares Amount
________ _________ ________ _________
Basic EPS 11,231 $ 0.35 11,450 $ 0.44
Effect of dilutive
stock options 290 (0.01) 354 (0.02)
________ _________ ________ _________
Diluted EPS 11,521 $ 0.34 11,804 $ 0.42
======== ========= ======== =========
Six Months ended July 5,
______________________________________
1997 1998
__________________ __________________
Per Share Per Share
Shares Amount Shares Amount
________ _________ ________ _________
Basic EPS 10,783 $ 0.64 11,421 $ 0.81
Effect of dilutive
stock options 302 (0.02) 337 (0.02)
________ _________ ________ _________
Diluted EPS 11,085 $ 0.62 11,758 $ 0.79
======== ========= ======== =========