UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 23, 2004
POMEROY IT SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-20022 31-1227808
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File number) Identification No.)
1020 Petersburg Road, Hebron, KY 41048
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(Address of principal executive offices)
Registrant's telephone number, including area code (859) 586-0600
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Item 2. Acquisition or Disposition of Assets.
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On July 23, 2004, Pomeroy IT Solutions, Inc. (Nasdaq: PMRY) ("Pomeroy") and
Pomeroy Acquisition Sub, Inc. ("PAS"), a wholly owned subsidiary of Pomeroy,
completed the merger with Alternative Resources Corporation (OTCBB: ALRC)
("ARC"). On May 11, 2004, the parties entered into a definitive merger
agreement (the "Agreement") for PAS to acquire ARC. The merger was approved by
ARC shareholders at a meeting held on July 22, 2004.
The merger with ARC represents a significant step in Pomeroy's business
strategy to expand its services business. ARC reported revenue of approximately
$138.1 million for calendar year 2003 and approximately $29.1 million for the
first quarter of 2004. The merger will nearly double total service revenue for
Pomeroy based on historical performance. In addition, with the anticipated
recovery of IT spending, it is believed that the merger represents an
opportunity to increase revenue growth. The merger adds approximately 2000
technical personnel to Pomeroy as well as some major new customers. The
additional technical personnel also allows Pomeroy to add new services
capabilities.
Under the terms of the Agreement, the stockholders of ARC received $.70 per
share in cash for each share of ARC common stock, $.01 par value, issued and
outstanding immediately prior to the effective time of the merger including all
shares of stock issued upon the exercise of vested stock options immediately
prior to the merger. In connection with the merger, Pomeroy retired all of
ARC's interest-bearing debt and purchased outstanding warrants for the
difference between $.70 per share and the exercise price per share of each
outstanding warrant. The cash consideration paid, including the cost of all
stock, stock options and warrants purchased and the amount of ARC net debt
retired, was approximately $46.1 million, which was funded from cash on hand and
borrowings under Pomeroy's existing line of credit.
As of July 23, 2004, ARC's net debt outstanding consisted of approximately
$13.6 million under a revolving credit facility from Fleet Capital Corporation
and $15.2 million in Senior Subordinated Secured Convertible Notes held by
Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P.
plus accrued interest and fees.
Pomeroy believes that it can improve the bottom line performance of ARC's
business, in part, by eliminating the very expensive financing costs incurred by
ARC, including an interest rate of 16% on the Senior Subordinated Secured
Convertible Notes that resulted in total interest expense in calendar year 2003
of over $4 million. Pomeroy also anticipates a reduction in combined SG&A
expenses due to the centralization of common tasks, and a write-down of ARC's
capitalized software investment on the opening balance sheet, resulting in a
reduction in the amount of annual depreciation expense on a going forward basis.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
141, Pomeroy has engaged a third party valuation firm to estimate the fair value
of certain intangible assets acquired in connection with the merger. Certain of
these assets would be subject to
amortization over lives ranging from three to ten years. Pomeroy believes that
this amortization expense will offset, but not significantly reduce, the
reduction in expenses described above.
There is no material relationship between Pomeroy or its affiliates and
ARC.
A copy of the news release is attached to this Form 8-K as exhibit 99.1.
Cautionary Statement Concerning Forward-Looking Statements
This Current Report on Form 8-K contains certain statements that are not purely
historical, which constitute "forward-looking statements" for purposes of the
Securities Act of 1933 and the Securities and Exchange Act of 1934, as amended.
As such, these statements involve known and unknown risks, uncertainties and
other factors, which may cause actual results to be materially different from
those projected or anticipated. These statements are based on information
available to Pomeroy as of the date hereof and Pomeroy disclaims any intention
or obligation to update any such forward-looking statements. Factors related to
the merger as well as estimated future operating results which could have an
adverse impact on the merger or cause actual results to differ materially from
current expectations include, but are not limited to, adverse conditions in the
financial markets relevant to the proposed merger, the inability to successfully
integrate ARC's business and employees into Pomeroy's business and workforce,
higher than expected costs associated with the merger, the estimated needs of
customers as conveyed to Pomeroy and ARC, market conditions including the
overall demand for IT products and services, the terms of applicable agreements
and certification programs and the assumptions regarding Pomeroy's and ARC's
performance thereunder, the companies' ability (after integration of ARC's
business) to attract and retain technical personnel and to identify and develop
expertise in future-demanded services, the nature and volume of products and
services anticipated to be delivered and the companies' ability to obtain
sufficient volumes of products and provide services.
Item 7. Financial Statements and Exhibits.
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(a) Financial statements of businesses acquired.
The financial statements required by this item are not included in
this Current Report on Form 8-K. These financial statements will be
provided in an amendment to this Current Report on Form 8-K as soon as
practicable, but no later than October 6, 2004.
(b) Pro forma financial information.
The pro forma financial information required by this item is not
included in this Current Report on Form 8-K. Pro forma financial
information will be provided in an
amendment to this Current Report on Form 8-K as soon as practicable,
but no later than October 6, 2004.
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of May 11, 2004 by and among Pomeroy
IT Solutions, Inc., Pomeroy Acquisition Sub, Inc. and Alternative
Resources Corporation (hereby incorporated by reference to Exhibit 10(I)
to the Pomeroy IT Solutions, Inc. report on Form 10-Q filed on May 17,
2004).
99.1 Press release dated July 23, 2004.
SIGNATURES
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 hereunto duly authorized.
POMEROY IT SOLUTIONS, INC.
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Date: August 9, 2004 By: /s/ Michael E. Rohrkemper
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Michael E. Rohrkemper, Chief Financial Officer
and Chief Accounting Officer