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, 2002
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 Identification Number)
or organization)
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 May 9, 2002 was
12,818,666.
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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 3
January 5, 2002 and April 5, 2002
Consolidated Statements of Income for 5
the Three Months Ended April 5, 2001
and 2002
Consolidated Statements of Cash Flows 6
for the Three Months Ended April 5, 2001
and 2002
Notes to Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of
Operations
Part II. Other Information 15
SIGNATURE 15
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POMEROY COMPUTER RESOURCES, INC.
--------------------------------
CONSOLIDATED BALANCE SHEETS
(in thousands) January 5, April 5,
2002 2002
----------- ---------
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,875 $ 12
Accounts receivable:
Trade, less allowance of $627 and $645 at January 5, 2002
and April 5, 2002, respectively . . . . . . . . . . . . 142,356 124,113
Vendor receivables, less allowance of $16,112 at both
January 5, 2002 and April 5, 2002 . . . . . . . . . . . 24,219 18,666
Net investment in leases . . . . . . . . . . . . . . . . . 35,809 32,834
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,413 4,596
----------- ---------
Total receivables. . . . . . . . . . . . . . . . . . 207,797 180,209
----------- ---------
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 20,876 19,824
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,468 8,827
----------- ---------
Total current assets.. . . . . . . . . . . . . . . . 240,016 208,872
----------- ---------
Equipment and leasehold improvements:
Furniture, fixtures and equipment . . . . . . . . . . . . . 29,920 29,979
Leasehold improvements. . . . . . . . . . . . . . . . . . . 5,700 5,674
----------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . 35,620 35,653
Less accumulated depreciation . . . . . . . . . . . . . . . 17,070 17,492
----------- ---------
Net equipment and leasehold improvements. . . . . . . . 18,550 18,161
----------- ---------
Net investment in leases. . . . . . . . . . . . . . . . . . . 22,438 21,890
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . 57,454 58,572
Intangible assets . . . . . . . . . . . . . . . . . . . . . . 1,060 925
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . 2,200 1,751
----------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . $ 341,718 $ 310,171
=========== =========
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES, INC.
--------------------------------
CONSOLIDATED BALANCE SHEETS
(in thousands) January 5, April 5,
2002 2002
----------- ---------
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of notes payable . . . . . . . . . . . . . . $ 27,190 $ 23,692
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 86,447 66,176
Bank notes payable . . . . . . . . . . . . . . . . . . . . . 11,882 709
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . 2,751 2,636
Other current liabilities. . . . . . . . . . . . . . . . . . 11,908 10,722
----------- ---------
Total current liabilities. . . . . . . . . . . . . . 140,178 103,935
----------- ---------
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . 10,213 9,862
Deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . 565 565
Equity:
Preferred stock, $.01 par value; authorized 2,000 shares
(no shares issued or outstanding) . . . . . . . . . . . - -
Common stock, $.01 par value; authorized 20,000 shares
(12,759 and 12,796 shares issued at January 5, 2002
and April 5, 2002, respectively). . . . . . . . . . . . 128 128
Paid in capital. . . . . . . . . . . . . . . . . . . . . . 80,487 80,871
Retained earnings. . . . . . . . . . . . . . . . . . . . . 110,979 115,642
----------- ---------
191,594 196,641
Less treasury stock, at cost (75 shares at January 5,
2002 and April 5, 2002) . . . . . . . . . . . . . . . . 832 832
----------- ---------
Total equity . . . . . . . . . . . . . . . . . . . . 190,762 195,809
----------- ---------
Total liabilities and equity . . . . . . . . . . . . $ 341,718 $ 310,171
=========== =========
See notes to financial statements.
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POMEROY COMPUTER RESOURCES, INC.
--------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended
----------------------
April 5, April 5,
2001 2002
---------- ----------
Net sales and revenues:
Sales-equipment, supplies and leasing $ 161,974 $ 153,453
Service . . . . . . . . . . . . . . . 33,722 32,895
---------- ----------
Total net sales and revenues . . . 195,696 186,348
---------- ----------
Cost of sales and service:
Sales-equipment, supplies and leasing 145,939 139,836
Service . . . . . . . . . . . . . . . 25,009 22,692
---------- ----------
Total cost of sales and service. . 170,948 162,528
---------- ----------
Gross margin. . . . . . . . . 24,748 23,820
---------- ----------
Operating expenses:
Selling, general and administrative 14,778 13,813
Rent expense. . . . . . . . . . . . 917 915
Depreciation. . . . . . . . . . . . 1,106 1,176
Amortization. . . . . . . . . . . . 1,346 271
Litigation settlement . . . . . . . 1,000 -
---------- ----------
Total operating expenses. . . 19,147 16,175
---------- ----------
Income from operations . . . . . . . . 5,601 7,645
---------- ----------
Other expense (income):
Interest expense. . . . . . . . . . 881 126
Miscellaneous . . . . . . . . . . . (77) (2)
---------- ----------
Total other expense . . . . . 804 124
---------- ----------
Income before income tax . . . . . 4,797 7,521
Income tax expense. . . . . . . . . 1,871 2,858
---------- ----------
Net income. . . . . . . . . . . . . $ 2,926 $ 4,663
========== ==========
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . 12,576 12,698
========== ==========
Diluted . . . . . . . . . . . . . . 12,717 12,789
========== ==========
Earnings per common share:
Basic . . . . . . . . . . . . . . . $ 0.23 $ 0.37
========== ==========
Diluted . . . . . . . . . . . . . . $ 0.23 $ 0.36
========== ==========
See notes to financial statements.
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POMEROY COMPUTER RESOURCES, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Three Months Ended
----------------------
April 5, April 5,
2001 2002
---------- ----------
Cash Flows from Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . $ 2,926 $ 4,663
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation. . . . . . . . . . . . . . . . . . 1,752 1,366
Amortization. . . . . . . . . . . . . . . . . . 1,380 343
Deferred income taxes . . . . . . . . . . . . . (150) -
Loss on sale of fixed assets. . . . . . . . . . 114 146
Changes in working capital accounts, net of
effects of acquisitions:
Receivables. . . . . . . . . . . . . . . . . 13,800 24,077
Inventories. . . . . . . . . . . . . . . . . 692 758
Prepaids . . . . . . . . . . . . . . . . . . 2,436 (431)
Net investment in leases . . . . . . . . . . 3,315 3,531
Accounts payable . . . . . . . . . . . . . . (7,974) (20,251)
Deferred revenue . . . . . . . . . . . . . . (4,061) (115)
Income tax payable . . . . . . . . . . . . . (899) (972)
Other, net . . . . . . . . . . . . . . . . . 649 154
---------- ----------
Net operating activities. . . . . . . . . . . . 13,980 13,269
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures. . . . . . . . . . . . . . (1,007) (870)
Proceeds from sale of fixed assets. . . . . . . - 34
Acquisition of subsidiary companies, net of
cash acquired. . . . . . . . . . . . . . . . (164) (656)
---------- ----------
Net investing activities. . . . . . . . . . . . (1,171) (1,492)
---------- ----------
Cash Flows from Financing Activities:
Payments under notes payable. . . . . . . . . . (4,552) (8,440)
Proceeds under notes payable. . . . . . . . . . 4,016 4,590
Net payments under bank notes payable.. . . . . (11,252) (11,174)
Proceeds from exercise of stock options . . . . 38 384
---------- ----------
Net financing activities. . . . . . . . . . . . (11,750) (14,640)
---------- ----------
Increase (decrease) in cash. . . . . . . . . . . . 1,059 (2,863)
Cash:
Beginning of period . . . . . . . . . . . . . . 1,097 2,875
---------- ----------
End of period . . . . . . . . . . . . . . . . . $ 2,156 $ 12
========== ==========
See notes to 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, 2002. 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, 2002 are not necessarily indicative of
the results that may be expected for future interim periods or for the year
ending January 5, 2003.
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 April 5, 2002, bank notes payable include
$3.4 million and $5.4 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. 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 April 5,
---------------------------------------
2001 2002
--------------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
--------- ---------- ------ --------
Basic EPS 12,576 $ 0.23 12,698 $ 0.37
Effect of dilutive
Stock options 141 - 91 (0.01)
--------- ---------- ------ --------
Diluted EPS 12,717 $ 0.23 12,789 $ 0.36
========= ========== ====== ========
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4. Goodwill and Other Intangible Assets-Adoption of Statement 142
On July 20, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") 141, Business Combinations, and
SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective
for fiscal years beginning after December 15, 2001; however, certain
provisions of this Statement apply to goodwill and other intangible assets
acquired between July 1, 2001 and the effective date of SFAS 142. Major
provisions of these Statements and their effective dates for the Company
are as follows:
- All business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before July
1, 2001.
- Intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability.
- Goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective January 6, 2002,
all previously recognized goodwill and intangible assets with
indefinite lives will no longer be subject to amortization.
- Effective January 6, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and whenever
there is an impairment indicator.
- All acquired goodwill must be assigned to reporting units for purposes
of impairment testing.
The Company adopted SFAS 142 in the first quarter of fiscal 2002. The
Company has determined that all its intangible assets have definite lives
and will continue to amortize these assets over their estimated useful
lives and will review for impairment in accordance with SFAS No. 144,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". As a result, the Company has recognized no
transitional impairment loss in the first quarter of fiscal 2002 in
connection with the adoption of SFAS 142 for intangible assets with
indefinite lives. For the first quarter of fiscal 2002, the Company no
longer amortized goodwill in accordance with SFAS 142. By July 5, 2002, the
Company will have completed a transitional fair value based impairment test
of goodwill as of January 6, 2002. Impairment losses, if any, resulting
from the transitional testing will be recognized as a cumulative effect of
a change in accounting principle. Management has not determined the impact
on the Company's financial position or results of operations for the
transitional testing of goodwill.
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Intangible assets consist of the following:
(in thousands) Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
1/5/2002 1/5/2002 1/5/2002 4/5/2002 4/5/2002 4/5/2002
--------- ------------- --------- --------- ------------- ---------
Amortized intangible assets:
Covenants not to compete $ 1,171 $ 653 $ 518 $ 1,226 $ 752 $ 474
Customer lists 477 236 241 477 254 223
Intangibles 563 263 301 563 335 228
--------- ------------- --------- --------- ------------- ---------
Total amortized intangibles $ 2,211 $ 1,152 $ 1,060 $ 2,266 $ 1,341 $ 925
========= ============= ========= ========= ============= =========
Projected future amortization expense related to intangible assets with definite
lives are as follows:
(in thousands)
Fiscal Years:
2002 $ 531 April 6, 2002 - January 5, 2003
2003 243
2004 118
2005 33
2006 -
-------
Total $ 925
=======
For the quarter ended April 5, 2001, amortization expense related to goodwill
was $1,060 thousand. Amortization expense related to intangibles assets was
$131 thousand of which $34 thousand was reported under the caption "cost of
sales" or "selling, general and administrative" expenses. Amortization expense
associated with assets reported under the caption "other current assets" was
$189 thousand.
For the quarter ended April 5, 2002, there was no amortization expense related
to goodwill. Amortization expense related to intangibles assets was $189
thousand of which $72 thousand was reported under the caption "cost of sales" or
"selling, general and administrative" expenses. Amortization expense associated
with assets reported under the caption "other current assets" was $154 thousand.
The changes in the net carrying amount of goodwill for the quarter ended April
5, 2002 by segment are as follows:
(in thousands) Products Services Consolidated
--------- --------- -------------
Net carrying amount as of 1/5/02 $ 40,812 $ 16,642 $ 57,454
Goodwill recorded during first quarter 407 711 1,118
--------- --------- -------------
Net carrying amount as of 4/5/02 $ 41,219 $ 17,353 $ 58,572
========= ========= =============
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Pro forma net income and net income per share exclusive of amortization expense
are as follows:
(in thousands, except per share data) Three Months Ended April 5,
------------------------
2001 2002
----------- -----------
Reported net income $ 2,926 $ 4,663
Add back: Goodwill amortization 647 -
----------- -----------
Adjusted net income $ 3,573 $ 4,663
=========== ===========
Basic earnings per share:
Reported net income $ 0.23 $ 0.37
Goodwill amortization 0.05 -
----------- -----------
Adjusted net income $ 0.28 $ 0.37
=========== ===========
Diluted earnings per share:
Reported net income $ 0.23 $ 0.36
Goodwill amortization 0.05 -
----------- -----------
Adjusted net income $ 0.28 $ 0.36
=========== ===========
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)
Three Months Ended April 5,
------------ ------------
2001 2002
------------ ------------
Interest paid $ 1,045 $ 115
============ ============
Income taxes paid $ 1,407 $ 3,830
============ ============
Adjustments to purchase price
of acquisition assets $ 354 $ 516
============ ============
6. Litigation
There are various other 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.
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7. Segment Information
Summarized financial information concerning the Company's reportable
segments is shown in the following table. (in thousands)
Three Months Ended April 5, 2001
--------------------------------------------------
Products Services Leasing Consolidated
--------- --------- ------------- -------------
Revenues $ 159,375 $ 33,722 $ 2,599 $ 195,696
Income from operations 4,022 1,208 371 5,601
Total assets 212,757 61,274 65,717 339,748
Capital expenditures 750 56 201 1,007
Depreciation and amortization 2,227 573 332 3,132
Three Months Ended April 5, 2002
--------------------------------------------------
Products Services Leasing Consolidated
--------- --------- ------------- -------------
Revenues $ 150,753 $ 32,895 $ 2,700 $ 186,348
Income from operations 2,693 3,968 984 7,645
Total assets 195,002 54,209 60,960 310,171
Capital expenditures 651 101 84 836
Depreciation and amortization 1,264 267 178 1,709
8. Assets Held For Sale
On February 28, 2002 the Company entered into a definitive purchase
agreement to sell substantially all of the net assets of its wholly owned
subsidiary - Technology Integration Financial Services, Inc. ("T.I.F.S.")
to Information Leasing Corporation ("ILC"), the leasing division of the
Provident Bank of Cincinnati, Ohio. On April 16, 2002 the Company closed
the sale of a majority of the assets of its wholly owned subsidiary
T.I.F.S. to ILC. Vincent D. Rinaldi, a Director of the Company, is the
President of ILC. ILC will pay the Company book value for the net assets of
T.I.F.S. as of April 16, 2002. At the time of the closing, ILC paid the
Company book value for the net assets of T.I.F.S. as of January 5, 2002,
which was approximately $3.1 million. The purchase price will be adjusted
upon the finalization of the April 16, 2002 book value for the net assets.
Accordingly, no gain or loss will be recognized on this transaction. In
addition, ILC assumed and liquidated at the time of the closing
approximately $18.9 million of the Company's debt related to leased assets
owed by T.I.F.S as of April 5, 2002. This amount will also be adjusted as
of April 16, 2002. As part of the transaction, the Company signed an
exclusive seven-year vendor agreement whereby the Company is appointed as
an agent for remarketing and reselling of the leased equipment sold. The
Company will be paid a commission on future lease transactions referred to
and accepted by ILC and will act as the remarketing and reselling agent for
such future leased equipment.
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The following table identifies the assets and liabilities as of April 5,
2002, which were sold on April 16, 2002:
(In thousands)
Cash $ (18)
Accounts receivable 1,709
Net investment in leases 51,315
Other 483
--------
Total assets $53,489
========
Current and long term notes payable $29,565
Intercompany debt 15,116
Other 4,498
--------
Total liabilities $49,179
========
See the Company's filing on Form 8-K dated May 1, 2002 for more information
on the sale.
9. Subsequent Event
Stock Option Plans
In April 2002, the Company's 1992 Non-Qualified and Incentive Stock Option
Plan and the Company's 1992 Outside Directors' Stock Option Plan
terminated. On March 27, 2002, the Company adopted the 2002 Non-Qualified
and Incentive Stock Option Plan and the 2002 Outside Directors' Stock
Option Plan, which is substantially similar in nature to the terminated
1992 Option Plans. These 2002 Option Plans will be submitted to the
shareholders for approval on June 13, 2002.
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.
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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 decreased $9.4
million, or 4.8%, to $186.3 million in the first quarter of fiscal 2002 from
$195.7 million in the first quarter of fiscal 2001. This decrease was a result
primarily of a continued industry-wide slowdown in technology spending and as a
result of the Company's decision to take a fee from manufacturers related to
certain sales transactions as opposed to recording top line revenues of
approximately $7.8 million. Excluding acquisitions completed in fiscal year
2001, total net sales and revenues decreased 5.3%. Products and leasing sales
decreased $8.5 million, or 5.2%, to $153.5 million in the first quarter of
fiscal 2002 from $162.0 million in the first quarter of fiscal 2001. Excluding
acquisitions completed in fiscal year 2001, products and leasing sales decreased
5.8%. Service revenues decreased $0.8 million, or 2.4%, to $32.9 million in the
first quarter of fiscal 2002 from $33.7 million in the first quarter of fiscal
year 2001. Excluding acquisitions completed in fiscal 2001, service revenues
decreased 2.7%.
GROSS MARGINS. Gross margins increased to 12.8% in the first quarter of fiscal
2002 as compared to 12.6% in the first quarter of fiscal 2001. This net
increase in gross margin is primarily the result of the increase in service
gross margin associated with improved utilization of service personnel offset by
the slight decrease in hardware gross margin. Service revenues increased to
17.7% of total net sales and revenues in the first quarter of fiscal 2002
compared to 17.2% of total net sales and revenues in the first quarter of fiscal
2001. Service gross margin increased to 42.8% of total gross margin in the first
quarter of fiscal 2002 from 35.2% in the first quarter of fiscal 2001. This
increase in gross margin is the result of improved utilization of service
personnel. Factors that may have an impact on gross margin in the future
include a decline in personnel utilization rates, the mix of products sold and
services provided, a further decline of unit prices, the percentage of equipment
or service sales with lower-margin customers and the ratio of service revenues
to total net sales and revenues.
OPERATING EXPENSES. Selling, general and administrative expenses (including
rent expense) expressed as a percentage of total net sales and revenues
decreased to 7.9% in the first quarter of fiscal 2002 from 8.0% in the first
quarter of fiscal 2001. The decrease is primarily the result of the reduction
in selling and administrative staff. Total operating expenses expressed as a
percentage of total net sales and revenues decreased to 8.7% in the first
quarter of fiscal 2002 from 9.8% in the first quarter of fiscal 2001. This
decrease in total operating expenses is due to the decrease in selling, general
and administrative expenses as discussed above, the elimination of amortization
expense associated with the Company's goodwill, and the elimination of the
litigation settlement fees reported in fiscal 2001.
INCOME FROM OPERATIONS. Income from operations increased $2.0 million, or
35.7%, to $7.6 million in the first quarter of fiscal 2002 from $5.6 million in
the first quarter of fiscal 2001. The Company's operating margin increased to
4.1% in the first quarter of fiscal 2002 as compared to 2.9% in the first
quarter of fiscal 2001. This increase is primarily due to the decrease in
operating expenses and the increase in the Company's gross margin.
INTEREST EXPENSE. Interest expense decreased $0.8 million, or 88.9% to $0.1
million in the first quarter of fiscal 2002 from $0.9 million in the first
quarter of fiscal 2001. This decrease was due to reduced borrowings as a result
of improved cash flow management and a reduced interest rate charged by the
lenders.
INCOME TAXES. The Company's effective tax rate was 38.0% in the first quarter
of fiscal 2002 compared to 39.0% in the first quarter of fiscal 2001. The net
decrease in the Company's effective tax rate is due to the change in goodwill
amortization.
NET INCOME. Net income increased $1.8 million, or 62.1% to $4.7 million in the
first quarter of fiscal 2002 from $2.9 million in the first quarter of fiscal
2001 due to the factors described above.
13 of 15
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $13.3 million in the first three
months of fiscal 2002. Cash used in investing activities was $1.5 million,
which included $0.8 million for capital expenditures and $0.7 million for
acquisitions completed in fiscal 2001. Cash used by financing activities was
$14.6 million, which included $3.8 million of net payments under notes payables
and $11.2 million of net payments under bank notes payable and offset by $0.4
million from the exercise of stock options.
A significant part of the Company's inventories is financed by floor plan
arrangements with third parties. At April 5, 2002, these lines of credit totaled
$84.0 million, including $72.0 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 $240.0 million credit facility has a three year
term and includes $72.0 million for inventory financing, $144.0 million for
working capital which is based upon accounts receivable financing, and a
cash-flow component in the form of a $24.0 million term loan, which is not
restricted to a borrowing base. Under the agreement, the credit facility
provides a credit line of $144.0 million for accounts receivable financing. The
accounts receivable and term loan portion of the credit facility carry a
variable interest rate based on the London InterBank Offering Rate ("LIBOR") and
a pricing grid. At April 5, 2002, the amount outstanding was $0.7 million,
including $5.4 million of overdrafts on the Company's books in accounts at a
participant bank on the credit facility. The interest rate on the amount
outstanding was 4.87%. 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 and
restricted from paying dividends.
The funding of the Company's net investment in sales-type leases is provided by
various financial institutions on a nonrecourse basis. On April 16, 2002, the
Company closed the sale of a majority of the assets of its wholly owned leasing
subsidiary- Technology Integration Financial Services, Inc. ("T.I.F.S."). ILC
will pay the Company book value for the net assets of T.I.F.S. as of April 16,
2002. At the time of the closing, ILC paid the Company book value for the net
assets of T.I.F.S. as of January 5, 2002, which was approximately $3.1 million.
The purchase price will be adjusted upon the finalization of the April 16, 2002
book value for the net assets. In addition, ILC assumed and liquidated at the
time of the closing approximately $18.9 million of the Company's debt related to
leased assets owed by T.I.F.S as of April 5, 2002. This amount will also be
adjusted as of April 16, 2002.
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
Mr. Brian P. Rogan has been named Vice President of Sales and Strategic
Alliances for the Company and his employment will commence effective April 15,
2002. Prior to joining the Company, Mr. Rogan served as Vice President of
Global Sales for Cognizant Technology Solutions and as Vice President of Sales
and Director for Keane's Notheast Region.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10 (I) Material Agreements
(l)(1) First Amendment to Employment Agreement by and between
Pomeroy Computer Resources, Inc. and Timothy E. Tonges,
dated March 25, 2002
(m)(1) First Amendment to Employment Agreement by and between
Pomeroy Computer Resources, Inc. and Michael Rohrkemper,
dated March 1, 2002
11 Computation of Earnings per Share
(b) Reports on Form 8-K
On May 1, 2002, the Company filed a Form 8-K with respect to the sale of
substantially all the assets of its wholly owned subsidiary TIFS.
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, 2002 By: Michael E. Rohrkemper
--------------------------------
Chief Financial Officer and
Chief Accounting Officer
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