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 October 5, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20022
POMEROY COMPUTER RESOURCES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1227808
- -------- ----------
(State or jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
1020 Petersburg Road, Hebron, KY 41048
--------------------------------------
(Address of principal executive offices)
(859) 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 November 5, 2000 was
12,577,497.
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POMEROY COMPUTER RESOURCES, INC.
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets as of
January 5, 2000 and October 5, 2000 3
Consolidated Statements of Income for
the Three Months Ended October 5, 1999
and 2000 5
Consolidated Statements of Income for
the Nine Months Ended October 5, 1999
and 2000 6
Consolidated Statements of Cash Flows
for the Nine Months Ended October 5,
1999 and 2000 7
Notes to Consolidated Financial
Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Item 2. Operations 11
Part II. Other Information 14
SIGNATURE 16
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) January 5, October 5,
2000 2000
----------- -----------
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,737 $ 454
Accounts receivable:
Trade, less allowance of $504 and $563 at January 5, 2000
and October 5, 2000, respectively. . . . . . . . . . . . . 129,882 129,788
Vendor receivables, less allowance of $1,902 and $1,950 at
January 5, 2000 and October 5, 2000, respectively. . . . . 53,698 45,178
Net investment in leases . . . . . . . . . . . . . . . . . . 14,937 33,213
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,144 3,133
----------- -----------
Total receivables . . . . . . . . . . . . . . . . . . . 202,661 211,312
----------- -----------
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 38,858 41,914
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,819 4,971
----------- -----------
Total current assets. . . . . . . . . . . . . . . . . . 247,075 258,651
----------- -----------
Equipment and leasehold improvements. . . . . . . . . . . . . 25,276 31,112
Less accumulated depreciation. . . . . . . . . . . . . . . 9,804 13,245
----------- -----------
Net equipment and leasehold improvements. . . . . . . . . . . 15,472 17,867
----------- -----------
Net investment in leases. . . . . . . . . . . . . . . . . . . 29,183 42,900
Goodwill and other intangible assets. . . . . . . . . . . . . 39,344 48,663
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . 2,067 1,492
----------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . $ 333,141 $ 369,573
=========== ===========
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) January 5, October 5,
2000 2000
----------- -----------
LIABILITIES & EQUITY
Current liabilities:
Current portion of notes payable . . . . . . . . . . . . . . . . $ 11,337 $ 19,099
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 92,454 75,098
Bank notes payable . . . . . . . . . . . . . . . . . . . . . . . 69,027 68,955
Other current liabilities. . . . . . . . . . . . . . . . . . . . 13,131 12,220
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . . . 185,949 175,372
----------- -----------
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,971 21,128
Deferred Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,400
Equity:
Preferred stock (no shares issued or outstanding). . . . . . . . - -
Common stock (11,843 and 12,577 shares issued and outstanding
at January 5, 2000 and October 5, 2000, respectively) . . . . . 118 126
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . 66,743 76,108
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 73,682 95,761
----------- -----------
140,543 171,995
Less treasury stock, at cost (31 shares at January 5, 2000 and
October 5, 2000). . . . . . . . . . . . . . . . . . . . . . . 322 322
----------- -----------
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . 140,221 171,673
----------- -----------
Total liabilities and equity. . . . . . . . . . . . . . . . . $ 333,141 $ 369,573
=========== ===========
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) Three Months Ended
-------------------------
October 5, October 5,
1999 2000
----------- ------------
Net sales and revenues . . . . . . . . $ 197,090 $ 246,911
Cost of sales and service. . . . . . . 170,035 212,838
----------- ------------
Gross margin. . . . . . . . . 27,055 34,073
----------- ------------
Operating expenses:
Selling, general and administrative 12,385 15,588
Rent expense. . . . . . . . . . . . 767 891
Depreciation. . . . . . . . . . . . 869 1,331
Amortization. . . . . . . . . . . . 771 1,143
Provision for doubtful accounts . . - 192
----------- ------------
Total operating expenses. . . 14,792 19,145
----------- ------------
Income from operations . . . . . . . . 12,263 14,928
----------- ------------
Other expense (income):
Interest expense. . . . . . . . . . 1,182 1,326
Miscellaneous . . . . . . . . . . . 1 (8)
----------- ------------
Total other expense . . . . . 1,183 1,318
----------- ------------
Income before income tax. . . . . . 11,080 13,610
Income tax expense. . . . . . . . . 4,548 5,423
----------- ------------
Net income. . . . . . . . . . . . . $ 6,532 $ 8,187
=========== ============
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . 11,744 12,289
=========== ============
Diluted . . . . . . . . . . . . . . 11,831 12,543
=========== ============
Earnings per common share:
Basic . . . . . . . . . . . . . . . $ 0.56 $ 0.67
=========== ============
Diluted . . . . . . . . . . . . . . $ 0.55 $ 0.65
=========== ============
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) Nine Months Ended
--------------------------
October 5, October 5,
1999 2000
------------ ------------
Net sales and revenues . . . . . . . . $ 547,862 $ 679,399
Cost of sales and service. . . . . . . 474,240 589,026
------------ ------------
Gross margin. . . . . . . . . 73,622 90,373
------------ ------------
Operating expenses:
Selling, general and administrative 35,006 41,413
Rent expense. . . . . . . . . . . . 2,169 2,447
Depreciation. . . . . . . . . . . . 2,666 3,514
Amortization. . . . . . . . . . . . 2,086 3,072
Provision for doubtful accounts . . 46 292
------------ ------------
Total operating expenses. . . 41,973 50,738
------------ ------------
Income from operations . . . . . . . . 31,649 39,635
------------ ------------
Other expense (income):
Interest expense. . . . . . . . . . 2,832 3,157
Miscellaneous . . . . . . . . . . . (44) (117)
------------ ------------
Total other expense . . . . . 2,788 3,040
------------ ------------
Income before income tax. . . . . . 28,861 36,595
Income tax expense. . . . . . . . . 11,581 14,517
------------ ------------
Net income. . . . . . . . . . . . . $ 17,280 $ 22,078
============ ============
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . 11,709 12,084
============ ============
Diluted . . . . . . . . . . . . . . 11,824 12,304
============ ============
Earnings per common share:
Basic . . . . . . . . . . . . . . . $ 1.48 $ 1.83
============ ============
Diluted . . . . . . . . . . . . . . $ 1.46 $ 1.79
============ ============
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Nine Months Ended
--------------------------
October 5, October 5,
1999 2000
------------ ------------
Cash Flows from Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . . . $ 17,280 $ 22,078
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . 3,387 4,077
Amortization. . . . . . . . . . . . . . . . . . . . 2,086 3,072
Deferred income taxes . . . . . . . . . . . . . . . (1,715) 1,888
Changes in working capital accounts, net of effects
of acquisitions:
Receivables . . . . . . . . . . . . . . . . . . (42,256) (3,423)
Inventories . . . . . . . . . . . . . . . . . . 9,025 (3,087)
Prepaids. . . . . . . . . . . . . . . . . . . . (1,393) (921)
Net investment in leases. . . . . . . . . . . . 340 (12,985)
Accounts payable. . . . . . . . . . . . . . . . (16,985) (20,466)
Deferred revenue. . . . . . . . . . . . . . . . 1,786 (2,589)
Other, net 1,113 538
------------ ------------
Net cash flows used in operating activities . . . . (27,332) (11,818)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures. . . . . . . . . . . . . . . . (2,172) (4,836)
Acquisition of assets, net of cash acquired . . . . (4,298) (12,230)
------------ ------------
Net cash flows used in investing activities. . . . (6,470) (17,066)
------------ ------------
Cash Flows from Financing Activities:
Net borrowings (payments) on bank notes payable. . 32,592 (72)
Net borrowings on notes payable. . . . . . . . . . 1,232 18,301
Proceeds from stock options related tax benefit. . 827 -
Proceeds from exercise of stock options. . . . . . 451 9,208
Proceeds from employee stock purchase plan . . . . 124 164
------------ ------------
Net cash flows provided by financing activities . . 35,226 27,601
------------ ------------
Increase (decrease) in cash. . . . . . . . . . . . . . 1,424 (1,283)
Cash:
Beginning of period . . . . . . . . . . . . . . . . 3,962 1,737
------------ ------------
End of period . . . . . . . . . . . . . . . . . . . $ 5,386 $ 454
============ ============
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Except as disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended
January 5, 2000. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the
interim period have been made. The results of operations for the nine-month
period ended October 5, 2000 are not necessarily indicative of the results
that may be expected for future interim periods or for the year ending
January 5, 2001.
2. Cash and Bank Notes Payable
The Company maintains a sweep account with its bank whereby daily cash
receipts are automatically transferred as a payment towards the Company's
credit facility. As a result, the Company maintains minimal cash in its
bank account. At January 5 and October 5, 2000, bank notes payable include
$19.1 million and $10.1 million, respectively, of overdrafts in accounts
with a participant bank to the Company's credit facility. These amounts
were subsequently funded through the normal course of business.
3. Accounts Receivable
Reclassifications have been made to the January 5, 2000 consolidated
balance sheet included herein to conform with the presentation used as of
October 5, 2000.
4. 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)
Three Months Ended October 5,
---------------------------------------
1999 2000
----------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
------ -------- ------ --------
Basic EPS 11,744 $ 0.56 12,289 $ 0.67
Effect of dilutive
Stock options 87 (0.01) 254 (0.02)
------ -------- ------ --------
Diluted EPS 11,831 $ 0.55 12,543 $ 0.65
====== ======== ====== ========
Nine Months Ended October 5,
---------------------------------------
1999 2000
---------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
------ -------- ------ --------
Basic EPS 11,709 $ 1.48 12,084 $ 1.83
Effect of dilutive
Stock options 115 (0.02) 220 (0.04)
------ -------- ------ --------
Diluted EPS 11,824 $ 1.46 12,304 $ 1.79
====== ======== ====== ========
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5. Supplemental Cash Flow Disclosures
Supplemental disclosures with respect to cash flow information and non-cash
investing and financing activities are as follows: (in thousands)
Nine Months Ended October 5,
----------------------------
1999 2000
--------------- -------------
Interest paid $ 2,650 $ 3,039
=============== =============
Income taxes paid $ 12,496 $ 11,984
=============== =============
Adjustments to purchase price
of acquisition assets $ 1,740 $ -
=============== =============
Business combinations accounted for
as purchases:
Assets acquired $ 10,573 $ 19,658
Liabilities assumed 5,022 5,278
Notes payable 697 2,150
Stock issued 556 -
--------------- -------------
Net cash paid $ 4,298 $ 12,230
=============== =============
6. Related Parties
A director of the Company is president of Information Leasing Corporation
("ILC"). In the first quarter of fiscal 2000, the Company sold certain
leases to ILC for $5.0 million.
7. 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.
8. Segment Information
Summarized financial information concerning the Company's reportable
segments is shown in the following table. During the second quarter of
fiscal 1999, depreciation expense associated with TIFS' operating leases
was reclassified under cost of sales for the leasing segment. (in
thousands)
Three Months Ended October 5, 1999
---------------------------------------------
Products Services Leasing Consolidated
--------- --------- -------- -------------
Revenues $ 168,896 $ 27,059 $ 1,135 $ 197,090
Income from operations 6,796 5,170 297 12,263
Total assets 202,207 60,897 36,665 299,769
Capital expenditures 539 144 - 683
Depreciation and amortization 1,234 367 39 1,640
Three Months Ended October 5, 2000
---------------------------------------------
Products Services Leasing Consolidated
--------- --------- -------- -------------
Revenues $ 206,015 $ 38,667 $ 2,229 $ 246,911
Income from operations 6,834 7,496 598 14,928
Total assets 219,535 66,116 83,922 369,573
Capital expenditures 1,910 632 479 3,021
Depreciation and amortization 1,872 496 106 2,474
9 of 16
Nine Months Ended October 5, 1999
---------------------------------------------
Products Services Leasing Consolidated
--------- --------- -------- -------------
Revenues $ 470,482 $ 74,459 $ 2,921 $ 547,862
Income from operations 16,067 14,627 955 31,649
Total assets 202,207 60,897 36,665 299,769
Capital expenditures 1,321 606 245 2,172
Depreciation and amortization 3,659 1,004 89 4,752
Nine Months Ended October 5, 2000
---------------------------------------------
Products Services Leasing Consolidated
--------- --------- -------- -------------
Revenues $ 569,759 $ 102,160 $ 7,480 $ 679,399
Income from operations 15,312 22,029 2,294 39,635
Total assets 219,535 66,116 83,922 369,573
Capital expenditures 3,526 831 479 4,836
Depreciation and amortization 5,068 1,247 271 6,586
9. Subsequent Events
The Company's credit facility extension agreement with DFS expired on
October 14, 2000, and the Company signed an additional ninety-day extension
agreement with DFS under the same terms as the original credit facility.
This extension will expire January 12, 2001. DFS approved, subject to
execution of documentation, an increase in the total facility to $175
million during the ninety-day extension period which consists of $100
million working capital facility and $75 million inventory facility. The
Company is currently negotiating with various financial institutions a new
credit facility in order to increase its overall financing availability.
Although there can be no assurances that the Company will be able to
finalize a new credit facility, the Company currently anticipates that an
agreement will be reached.
On November 7, 2000, the Company acquired The Linc Corporation and Val Tech
Computer Systems, Inc., both based in Birmingham, Alabama. The Linc's
primary focus is on network design, consulting, systems engineering and
maintenance in connection with Cisco products. Val Tech operates as a
leasing company for products and services offered by the Linc Corporation.
The acquisition will be accounted for as a stock purchase and was not
significant with respect to the Company's consolidated financial
statements. The results of operations from the acquisition will be included
in the consolidated statement of income from the date of acquisition.
10 of 16
Special Cautionary Notice Regarding Forward-Looking Statements
--------------------------------------------------------------
Certain of the matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contain certain
forward looking statements regarding future financial results of the Company.
The words "expect," "estimate," "anticipate," "predict," and similar expressions
are intended to identify forward-looking statements. Such statements are
forward-looking statements for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Important factors that could cause the actual
results, performance or achievements of the Company to differ materially from
the Company's expectations are disclosed in this document including, without
limitation, those statements made in conjunction with the forward-looking
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations". All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by such
factors.
POMEROY COMPUTER RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TOTAL NET SALES AND REVENUES. Total net sales and revenues increased $49.8
million, or 25.3%, to $246.9 million in the third quarter of fiscal 2000 from
$197.1 million in the third quarter of fiscal 1999. This increase was
attributable to an increase in sales to existing and new customers and to
acquisitions completed in fiscal year 2000. Excluding acquisitions completed in
fiscal year 2000, total net sales and revenues increased 23.7%. Product and
leasing sales increased $38.2 million, or 22.5%, to $208.2 million in the third
quarter of fiscal 2000 from $170.0 million in the third quarter of fiscal 1999.
Excluding acquisitions completed in fiscal year 2000, product and leasing sales
increased 21.0%. Service revenues increased $11.6 million, or 42.8%, to $38.7
million in the third quarter of fiscal 2000 from $27.1 million in the third
quarter of fiscal year 1999. Excluding acquisitions completed in fiscal year
2000, service revenues increased 40.8%.
Total net sales and revenues increased $131.5 million, or 24.0%, to $679.4
million in the first nine months of fiscal 2000 from $547.9 million in the first
nine months of fiscal 1999. This increase was attributable to an increase in
sales to existing and new customers and to acquisitions completed in fiscal year
2000. Excluding acquisitions completed in fiscal year 2000, total net sales and
revenues increased 23.4%. Product and leasing sales increased $103.8 million, or
21.9%, to $577.2 million in the first nine months of fiscal 2000 from $473.4
million in the first nine months of fiscal 1999. Excluding acquisitions
completed in fiscal year 2000, product and leasing sales increased 21.4%.
Service revenues increased $27.7 million, or 37.2%, to $102.2 million in the
first nine months of fiscal 2000 from $74.5 million in the first nine months of
fiscal year 1999. Excluding acquisitions completed in fiscal year 2000, service
revenues increased 36.5%.
GROSS MARGINS. Gross margin increased to 13.8% in the third quarter of fiscal
2000 as compared to 13.7% in the third quarter of fiscal 1999. This increase in
gross margin resulted primarily from the increase in a higher mix of service
revenue to total revenue. Service revenues increased to 15.7% of total net sales
and revenues in the third quarter of fiscal 2000 compared to 13.7% of total net
sales and revenues in the third quarter of fiscal 1999. Service gross margin
increased to 45.6% of total gross margin in the third quarter of fiscal 2000
from 39.1% in the third quarter of fiscal 1999. This increase in the percentage
of service gross margin to total gross margin was primarily due to the increase
in higher-margin service revenues. Factors that may have an impact on gross
margin in the future include the further decline of unit prices, the percentage
of equipment or service sales with lower-margin customers, the ratio of service
revenues to total net sales and revenues, and personnel utilization rates.
Gross margin decreased to 13.3% in the first nine months of fiscal 2000 as
compared to 13.4% in the first nine months of fiscal 1999. This decrease in
gross margin resulted primarily from the Company's decision to obtain new
business and increase sales by aggressively pricing certain products and
services in the first quarter of fiscal 2000. Service revenues increased to
15.0% of total net sales and revenues in the first nine months of fiscal 2000
compared to 13.6% of total net sales and revenues in the first nine months of
fiscal 1999. Service gross margin increased to 47.1% of total gross margin in
11 of 16
the first nine months of fiscal 2000 from 41.4% in the first nine months of
fiscal 1999. This increase in the percentage of service gross margin to total
gross margin was primarily due to the increase in higher-margin service
revenues. Factors that may have an impact on gross margin in the future include
the further decline of unit prices, the percentage of equipment or service sales
with lower-margin customers, the ratio of service revenues to total net sales
and revenues, and personnel utilization rates.
OPERATING EXPENSES. Selling, general and administrative expenses (including rent
expense) expressed as a percentage of total net sales and revenues remained
constant at 6.7% in the third quarter of fiscal 2000 as compared to 6.7% in the
third quarter of fiscal 1999. Excluding acquisitions completed in fiscal year
2000, selling, general and administrative expenses expressed as a percentage of
total net sales and revenues would have been 6.6% in the third quarter of fiscal
2000. Total operating expenses expressed as a percentage of total net sales and
revenues increased to 7.8% in the third quarter of fiscal 2000 from 7.5% in the
third quarter of fiscal 1999 due to the increase in depreciation expense and
amortization expense as a result of acquisitions and other capital expenditures.
Excluding acquisitions completed in fiscal year 2000, total operating expenses
expressed as a percentage of total net sales and revenues would have been 7.6%
in the third quarter of fiscal 2000.
Selling, general and administrative expenses (including rent expense) expressed
as a percentage of total net sales and revenues decreased to 6.5% in the first
nine months of fiscal 2000 from 6.8% in the first nine months of fiscal 1999.
This decrease is primarily due to the growth in net sales and revenues exceeding
the growth in selling, general and administrative expenses. Excluding
acquisitions completed in fiscal year 2000, selling, general and administrative
expenses expressed as a percentage of total net sales and revenues would have
been 6.4% in the first nine months of fiscal 2000. Total operating expenses
expressed as a percentage of total net sales and revenues decreased to 7.5% in
the first nine months of fiscal 2000 from 7.7% in the first nine months of
fiscal 1999 due to the reason noted above and offset by the increases in
depreciation and amortization expenses. Excluding acquisitions completed in
fiscal year 2000, total operating expenses expressed as a percentage of total
net sales and revenues would have been 7.4% in the first nine months of fiscal
2000.
INCOME FROM OPERATIONS. Income from operations increased $2.6 million, or 21.1%,
to $14.9 million in the third quarter of fiscal 2000 from $12.3 million in the
third quarter of fiscal 1999. The Company's operating margin decreased to 6.1%
in the third quarter of fiscal 2000 as compared to 6.2% in the third quarter of
fiscal 1999. This decrease is primarily due to the Company's increase in
operating expenses in the third quarter due to the increase in depreciation
expense and amortization as a result of acquisitions and other capital
expenditures.
Income from operations increased $8.0 million, or 25.3%, to $39.6 million in the
first nine months of fiscal 2000 from $31.6 million in the first nine months of
fiscal 1999. The Company's operating margin remained constant at 5.8% in the
first nine months of fiscal 2000 as compared to 5.8% in the first nine months of
fiscal 1999.
INTEREST EXPENSE. Interest expense increased $0.1 million, or 8.3%, to $1.3
million in the third quarter of fiscal 2000 from $1.2 million in the third
quarter of fiscal 1999. This increase is primarily due to the Company's overall
increase in debt borrowings in the first nine months of fiscal 2000.
Interest expense increased $0.4 million, or 14.3%, to $3.2 million in the first
nine months of fiscal 2000 from $2.8 million in the first nine months of fiscal
1999. This increase is primarily due to the Company's overall increase in debt
borrowings in the first nine months of fiscal 2000.
INCOME TAXES. The Company's effective tax rate was 39.8% in the third quarter of
fiscal 2000 compared to 41.0% in the third quarter of fiscal 1999. The decrease
in the Company's effective tax rate results from the Company's lowering of its
overall state income tax liability.
The Company's effective tax rate was 39.7% in the first nine months of fiscal
2000 compared to 41.0% in the first nine months of fiscal 1999. The decrease in
the Company's effective tax rate results from the Company's lowering of its
overall state income tax liability.
NET INCOME. Net income increased $1.7 million, or 26.2%, to $8.2 million in the
third quarter of fiscal 2000 from $6.5 million in the third quarter of fiscal
1999 due to the factors described above. Net income increased $4.8 million, or
27.7%, to $22.1 million in the first nine months of fiscal 2000 from $17.3
million in the first nine months of fiscal 1999 due to the factors described
above.
12 of 16
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $11.8 million in the first nine months of
fiscal 2000. Cash used in investing activities was $17.1 million which included
$4.9 million for capital expenditures and $12.2 million for acquisitions
completed in fiscal 2000 and fiscal 1999. Cash provided by financing activities
was $27.6 million which included $18.3 million of net borrowings on notes
payable and $9.3 million from the exercise of stock options and employee stock
purchase plan.
A significant part of the Company's inventories is financed by floor plan
arrangements with third parties. At October 5, 2000, these lines of credit
totaled $72.0 million, including $60.0 million with Deutsche Financial Services
("DFS") and $12.0 million with IBM Credit Corporation ("ICC"). Borrowings under
the DFS floor plan arrangements are made on thirty-day notes. Borrowings under
the ICC floor plan arrangements are made on either thirty-day or sixty-day
notes. All such borrowings are secured by the related inventory. Financing on
substantially all of the arrangements is interest free due to subsidies by
manufacturers. Overall, the average rate on these arrangements is less than
1.0%. The Company classifies amounts outstanding under the floor plan
arrangements as accounts payable.
The Company's financing of receivables is provided through a portion of its
credit facility with DFS. The credit facility provides a credit line of $80.0
million for accounts receivable financing. The accounts receivable portion of
the credit facility carries a variable interest rate based on the prime rate
less 125 basis points. At October 5, 2000, the amount outstanding was $69.0
million, including $10.1 million of overdrafts on the Company's books in
accounts at a participant bank on the credit facility, which was at an interest
rate of 8.25%. The overdrafts were subsequently funded through the normal course
of business. The credit facility is collateralized by substantially all of the
assets of the Company, except those assets that collateralize certain other
financing arrangements. Under the terms of the credit facility, the Company is
subject to various financial covenants.
During the first nine months of fiscal 2000, the Company increased the leasing
activity through its wholly-owned leasing subsidiary, TIFS. This increased
leasing activity during the first nine months of fiscal 2000 resulted in $23.4
million in increased net borrowings under the Company's notes payable. The
funding of the Company's net investment in sales-type leases is provided by
various financial institutions on a non-recourse basis. Further increases in
leasing operations could result in additional debt and interest expense
depending on the amount of leasing activity and the types of leasing
transactions.
The Company's credit facility extension agreement with DFS expired on October
14, 2000, and the Company signed an additional ninety-day extension agreement
with DFS under the same terms as the original credit facility. This extension
will expire January 12, 2001. DFS approved, subject to execution of
documentation, an increase in the total facility to $175 million during the
ninety-day extension period which consists of $100 million working capital
facility and $75 million inventory facility. The Company is currently
negotiating with various financial institutions a new credit facility in order
to increase its overall financing availability. Although there can be no
assurances that the Company will be able to finalize a new credit facility, the
Company currently anticipates that an agreement will be reached.
The Company believes that the anticipated cash flow from operations and current
financing arrangements will be sufficient to satisfy the Company's capital
requirements for the next twelve months. Historically, the Company has financed
acquisitions using a combination of cash, earn outs, shares of its Common Stock
and seller financing. The Company anticipates that future acquisitions will be
financed in a similar manner.
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POMEROY COMPUTER RESOURCES, INC.
PART II OTHER INFORMATION
Items 1 to 3 None
Item 4 None
Item 5 None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
--------
10(i)
Material Agreements
(kk)(1) The Asset Purchase Agreement dated
July 27, 2000 by, between and among
Pomeroy Computer Resources, Inc.,
Pomeroy Select Integration Solutions,
Inc., DataNet, Inc., DataNet Technical
Services, LLC, DataNet Tangible
Products, LLC, DataNet Programming,
LLC, Richard Stitt, Gregory Stitt,
Jeffrey Eacho, and Richard
Washington.
(kk) (2) Noncompetiton Agreement by and
between Jeffrey Eacho and Pomeroy
Computer Resources, Inc.
(kk) (3) Noncompetition Agreement by and
between Jeffrey Eacho and Pomeroy
Select Integration Solutions, Inc.
(kk) (4) Noncompetition Agreement by and
between Gregory Stitt and Pomeroy
Computer Resources, Inc.
(kk) (5) Noncompetition Agreement by and
between Gregory Stitt and Pomeroy
Select Integration Solutions, Inc.
(kk) (6) Noncompetition Agreement by and
between DataNet Programming, LLC
and Pomeroy Computer Resources,
Inc.
(kk) (7) Noncompetition Agreement by and
between DataNet Tangible Products, LLC
and Pomeroy Computer Resources,
Inc.
(kk) (8) Noncompetition Agreement by and
between DataNet Technical Services, LLC
and Pomeroy Computer Resources,
Inc.
14 of 16
(kk) (9) Noncompetition Agreement by and
between DataNet, Inc. and Pomeroy
Computer Resources, Inc.
(kk) (10) Noncompetition Agreement by and
between DataNet Programming, LLC and
Pomeroy Select Integration Solutions, Inc.
(kk) (11) Noncompetition Agreement by and
between DataNet Tangible Products, LLC and
Pomeroy Select Integration Solutions, Inc.
(kk) (12) Noncompetition Agreement by and
between DataNet Technical Services, LLC and
Pomeroy Select Integration Solutions, Inc.
(kk) (13) Noncompetition Agreement by and
between DataNet, Inc. and Pomeroy Select
Integration Solutions, Inc.
(kk) (14) Noncompetition Agreement by and
between Richard Stitt and Pomeroy
Computer Resources, Inc.
(kk) (15) Noncompetition Agreement by and
between Richard Stitt and Pomeroy
Select Integration Solutions, Inc.
(kk) (16) Noncompetition Agreement by and
between Richard Washington and
Pomeroy Computer Resources, Inc.
(kk) (17) Noncompetition Agreement by and
between Richard Washington and
Pomeroy Select Integration Solutions, Inc.
(kk) (18) Employment Agreement by and
between Pomeroy Computer Resources,
Inc. and Jeffrey Eacho.
(kk) (19) Employment Agreement by and
between Pomeroy Computer Resources,
Inc. and Gregory Stitt.
(kk) (20) Employment Agreement by and
between Pomeroy Computer Resources,
Inc. and Richard Stitt.
(kk) (21) Employment Agreement by and
between Pomeroy Computer Resources,
Inc. and Richard Washington.
11 Computation of Earnings Per Share
27 Financial Data Schedules
(b) Reports on Form 8-K None
15 of 16
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: November 10, 2000 By: /s/ Stephen E. Pomeroy
------------------------------------
Stephen E. Pomeroy
Chief Financial Officer and
Chief Accounting Officer
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