FOR IMMEDIATE RELEASE
CONTACT:
Mike Rohrkemper, CFO
(859) 586-0600 x1416
investor@pomeroy.com
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POMEROY IT SOLUTIONS ANNOUNCES RESTATEMENT OF 1ST QUARTER 2005 RESULTSOF
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OPERATIONS
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HEBRON, KY; June 15, 2005 --- Pomeroy IT Solutions (NASDAQ:PMRY) ("Pomeroy")
today announced that the previously issued interim consolidated financial
statements of Pomeroy for the first quarter ended April 5, 2005, as set forth in
its Quarterly Report on Form 10-Q, and the 2nd Quarter guidance previously
provided by the company should no longer be relied upon because of accounting
errors in which payroll and subcontractor costs were under-accrued as of April
5, 2005. As a result, cost of sales and service and selling, general and
administrative expenses were understated by $1.421 million and $503 thousand,
respectively, for the three months ended April 5, 2005, resulting in a decrease
in service gross margins from 31.3% as initially reported, to 28.6% and a
decrease in earnings per share on a fully diluted basis from $.23 to $.14.
Pomeroy records employee and subcontractor expenses related to the provision of
services as cost of sales and service and other employee and subcontractor
expenses as selling, general and administrative expenses.
The errors were identified by management in connection with the review of
Pomeroy's financial accounting systems subsequent to the release of the first
quarter financial results. The under-accrual error relating to payroll expenses
occurred in connection with the final conversion, during the first quarter of
2005, of ARC's payroll practices to Pomeroy's payroll systems as part of
completing the integration of Pomeroy's merger with ARC. The conversion and
integration process involved changing certain employees' payroll payments from a
bi-weekly to a weekly basis and the under-accrual resulted from an error in the
accrual formula. In addition, the processing of certain subcontractor expenses
was not completed on a timely basis as a result of the relocation of that
processing function, during the first quarter of 2005, from the former ARC
headquarters to Pomeroy's headquarters.
Pomeroy is taking steps to enhance its internal control over financial reporting
designed to prevent a recurrence of the errors discussed above. The Audit
Committee and management intend to discuss the matter in detail with Pomeroy's
auditor as part of their efforts to enhance Pomeroy's internal controls over
financial reporting. In addition, the Board and management are evaluating
additional actions to review Pomeroy's accounting and information systems as
well as the recent conversion and integration of the systems.
"We regret that the errors made in the process of converting ARC's payroll
practices to Pomeroy's payroll systems led to the under-accrual of certain
personnel costs in the first quarter of 2005. Pomeroy has always taken
seriously our responsibility to provide accurate financial information to our
shareholders and we are taking significant steps to improve the quality of our
financial systems to ensure that such an error does not occur again in the
future. In addition, we are now undertaking a review of our cost structure to
ensure that we are diligently controlling our expenses," said Stephen E.
Pomeroy, President and Chief Executive Officer.
About Pomeroy IT Solutions
As a national solutions provider, Pomeroy provides functional outsourcing,
application development, managed services in the data center and national
support services. Pomeroy maintains a workforce of approximately 3,000 skilled
employees who with the capabilities to plan, design, implement and support all
categories of its consulting, infrastructure and lifecycle solutions offerings.
Pomeroy helps clients leverage IT as an enabler to increase productivity, drive
costs out and improve profitability. Pomeroy has clientele across a broad
spectrum of industries, governments and educational organizations. The company
reported revenues of $742 million for the year ended January 5, 2005.
Certain of the statements in the preceding paragraphs regarding projected
revenues and service capabilities constitute "forward-looking statements" for
purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended, and as such they involve known and unknown risks, uncertainties and
other factors which may cause actual results to be materially different from
those projected. Further, projected revenues contained in such statements are
based on the estimated needs of the customers as conveyed to Pomeroy. Other
factors which could cause actual results to differ materially from current
expectations include, but are not limited to, the ability to successfully
integrate ARC's business and employees into Pomeroy's business and workforce,
the occurrence of a significant system failure, the company's ability to expand
or successfully implement its management information systems, higher than
expected costs associated with the ARC merger, the terms of applicable
agreements and assumptions regarding Pomeroy's performance thereunder, the
nature and volume of products and services anticipated to be delivered, existing
market and competitive conditions including the overall demand for IT products
and services, the ability to implement Pomeroy's best practices strategies, the
ability to manage risks associated with customer projects, the ability to
attract and retain technical and other highly skilled personnel and Pomeroy's
ability to obtain sufficient volumes of products and provide services.