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, 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 October 30, 1998 was
11,533,619.
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POMEROY COMPUTER RESOURCES
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets as of January 5, 3
1998 and October 5, 1998
Consolidated Statements of Income for the 4
Quarters Ended October 5, 1998 and 1997
Consolidated Statements of Income for the Nine 5
Months Ended October 5, 1998 and 1997
Consolidated Statements of Cash Flows for the 6
Nine Months Ended October 5, 1998 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
Part II Other Information 13
SIGNATURE 14
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POMEROY COMPUTER RESOURCES
CONSOLIDATED BALANCE SHEETS
(In thousands)
JANUARY 5, OCTOBER 5,
ASSETS 1998 1998
----------- -----------
CURRENT ASSETS:
CASH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 380 $ 1,519
ACCOUNTS AND NOTE RECEIVABLE, LESS ALLOWANCE OF $578 AND $739 AT
JANUARY 5, AND OCTOBER 5, 1998, RESPECTIVELY. . . . . . . . . . . 99,707 138,816
INVENTORIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,160 40,218
OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816 1,333
----------- -----------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . 140,063 181,886
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS . . . . . . . . . . . . . . . . 17,316 22,208
LESS ACCUMULATED DEPRECIATION. . . . . . . . . . . . . . . . . . . . 6,770 9,477
----------- -----------
NET EQUIPMENT AND LEASEHOLD IMPROVEMENTS. . . . . . . . . . . . . 10,546 12,731
----------- -----------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,655 26,633
----------- -----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . $ 167,264 $ 221,250
=========== ===========
LIABILITIES & EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,077 $ 2,456
ACCOUNTS PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . 40,038 56,767
BANK NOTES PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . 22,611 39,408
OTHER CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . 12,309 12,043
----------- -----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . 77,035 110,674
----------- -----------
NOTES PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,434 5,090
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . 18 434
EQUITY:
PREFERRED STOCK (NO SHARES ISSUED OR OUTSTANDING) . . . . . . . . - -
COMMON STOCK (11,402 AND 11,534 SHARES ISSUED AND OUTSTANDING AT
JANUARY 5 AND OCTOBER 5, 1998, RESPECTIVELY). . . . . . . . . . . 114 115
PAID-IN CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . 60,226 61,940
RETAINED EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . 28,641 43,319
----------- -----------
88,981 105,374
LESS TREASURY STOCK, AT COST (21 AND 31 SHARES AT JANUARY 5
AND OCTOBER 5, 1998, RESPECTIVELY) . . . . . . . . . . . . . . . . . 204 322
----------- -----------
TOTAL EQUITY . . . . . . . . . . . . . . . . . . . 88,777 105,052
----------- -----------
TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . $ 167,264 $ 221,250
=========== ===========
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Quarter Ended
--------------------------
OCTOBER 5, OCTOBER 5,
1997 1998
------------ ------------
NET SALES AND REVENUES. . . . . . . . . $ 130,729 $ 163,790
COST OF SALES AND SERVICE . . . . . . . 109,196 134,275
------------ ------------
GROSS PROFIT. . . . . . . . . . . 21,533 29,515
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE. 12,841 18,292
RENT EXPENSE . . . . . . . . . . . . 486 622
DEPRECIATION . . . . . . . . . . . . 702 973
AMORTIZATION . . . . . . . . . . . . 271 433
------------ ------------
TOTAL OPERATING EXPENSES. . . . . 14,300 20,320
------------ ------------
INCOME FROM OPERATIONS. . . . . . . . . 7,233 9,195
INTEREST EXPENSE. . . . . . . . . . . . 182 711
OTHER EXPENSE (INCOME). . . . . . . . . (42) (77)
------------ ------------
INCOME BEFORE INCOME TAX. . . . . . . . 7,093 8,561
INCOME TAX EXPENSE. . . . . . . . . . . 2,553 3,168
------------ ------------
NET INCOME. . . . . . . . . . . . . . . $ 4,540 $ 5,393
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC. . . . . . . . . . . . . . . . 11,269 11,505
DILUTED. . . . . . . . . . . . . . . 11,617 11,745
EARNINGS PER COMMON SHARE:
BASIC. . . . . . . . . . . . . . . . $ 0.40 $ 0.47
DILUTED. . . . . . . . . . . . . . . $ 0.39 $ 0.46
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Nine Months Ended
-------------------------
OCTOBER 5, OCTOBER 5,
1997 1998
----------- ------------
NET SALES AND REVENUES. . . . . . . . . $ 349,313 $ 457,831
COST OF SALES AND SERVICE . . . . . . . 291,741 377,814
----------- ------------
GROSS PROFIT. . . . . . . . . . . 57,572 80,017
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE. 34,613 49,057
RENT EXPENSE . . . . . . . . . . . . 1,405 1,810
DEPRECIATION . . . . . . . . . . . . 2,205 2,779
AMORTIZATION . . . . . . . . . . . . 706 1,195
----------- ------------
TOTAL OPERATING EXPENSES. . . . . 38,929 54,841
----------- ------------
INCOME FROM OPERATIONS. . . . . . . . . 18,643 25,176
INTEREST EXPENSE. . . . . . . . . . . . 648 2,011
OTHER EXPENSE (INCOME). . . . . . . . . 79 (133)
----------- ------------
INCOME BEFORE INCOME TAX. . . . . . . . 17,916 23,298
INCOME TAX EXPENSE. . . . . . . . . . . 6,449 8,620
----------- ------------
NET INCOME. . . . . . . . . . . . . . . $ 11,467 $ 14,678
=========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC. . . . . . . . . . . . . . . . 10,949 11,450
DILUTED. . . . . . . . . . . . . . . 11,263 11,754
EARNINGS PER COMMON SHARE:
BASIC. . . . . . . . . . . . . . . . $ 1.05 $ 1.28
DILUTED. . . . . . . . . . . . . . . $ 1.02 $ 1.25
See notes to consolidated financial statements.
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POMEROY COMPUTER RESOURCES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
--------------------------
October 5, October 5,
1997 1998
------------ ------------
Net cash flows used in operating activities. . . . . . $ (21,995) $ (2,312)
------------ ------------
Cash flows used in investing activities:
Capital expenditures. . . . . . . . . . . . . . . . (1,790) (2,684)
Acquisition of resellers. . . . . . . . . . . . . . (2,990) (11,229)
------------ ------------
Net investing activities . . . . . . . . . . . . . . . (4,780) (13,913)
------------ ------------
Cash flows provided by (used in) financing activities:
Net borrowings (payments) on bank note. . . . . . . (3,070) 16,797
Payment of notes payable. . . . . . . . . . . . . . (492) (1,030)
Net proceeds of stock offering. . . . . . . . . . . 23,262 -
Purchase of treasury stock. . . . . . . . . . . . . - (118)
Proceeds from exercise of stock options . . . . . . 320 1,715
------------ ------------
Net financing activities . . . . . . . . . . . . . . . 20,020 17,364
------------ ------------
Increase (decrease) in cash. . . . . . . . . . . . . . (6,755) 1,139
Cash:
Beginning of period . . . . . . . . . . . . . . . . 6,809 380
------------ ------------
End of period . . . . . . . . . . . . . . . . . . . $ 54 $ 1,519
============ ============
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, 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 nine-month period ended October 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 October 5, 1998, bank notes payable include $6.5
million and $2.1 million, respectively, of overdrafts in accounts with the
Company's secondary lender. These amounts were subsequently funded through the
normal course of business.
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
utilizes thirty day notes and provides 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
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.
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 October 5,
----------------------------------------
1997 1998
------------------- -------------------
Per Share Per Share
Shares Amount Shares Amount
------ ----------- ------ -----------
Basic EPS. . . . . . . . . . . . 11,269 $ 0.40 11,505 $ 0.47
Effect of dilutive stock options 348 (0.01) 240 (0.01)
------ ----------- ------ -----------
Diluted EPS. . . . . . . . . . . 11,617 $ 0.39 11,745 $ 0.46
====== =========== ====== ===========
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3. Earnings per Common Share (continued)
Nine months ended October 5,
----------------------------------------
1997 1998
------------------- -------------------
Per Share Per Share
Shares Amount Shares Amount
------ ----------- ------ -----------
Basic EPS. . . . . . . . . . . . 10,949 $ 1.05 11,450 $ 1.28
Effect of dilutive stock options 314 (0.03) 304 (0.03)
------ ----------- ------ -----------
Diluted EPS. . . . . . . . . . . 11,263 $ 1.02 11,754 $ 1.25
====== =========== ====== ===========
4. Supplemental Cash Flow Disclosures
Supplemental disclosures with respect to cash flow information and non-cash
investing and financing activities are as follows:
Nine Months Ended
------------------------
October 5, October 5,
1997 1998
----------- -----------
Interest paid . . . . . . . . . . . $ 721 $ 1,834
=========== ===========
Income taxes paid . . . . . . . . . $ 5,023 $ 12,056
=========== ===========
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.
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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 $33.1
million, or 25.3%, to $163.8 million in the third quarter of 1998 from $130.7
million in the third 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 0.9%. Sales of equipment
and supplies increased $24.5 million, or 21.0%, to $141.3 million in the third
quarter of 1998 from $116.8 million in the third quarter of 1997. Excluding
acquisitions completed in fiscal years 1998 and 1997, sales of equipment and
supplies decreased 3.3%. Service revenues increased $8.5 million, or 60.7%, to
$22.5 million in the third quarter of 1998 from $14.0 million in the third
quarter of 1997. Excluding acquisitions completed in fiscal years 1998 and 1997,
service revenues increased 48.7%.
Total net sales and revenues increased $108.5 million, or 31.1%, to $457.8
million in the first nine months of 1998 from $349.3 million in the first nine
months of 1997. Excluding acquisitions completed in fiscal years 1998 and 1997,
total net sales and revenues increased 12.3%. Sales of equipment and supplies
increased $86.4 million, or 27.6%, to $400.0 million in the first nine months of
1998 from $313.6 million in the first nine months of 1997. Excluding
acquisitions completed in fiscal years 1998 and 1997, sales of equipment and
supplies increased 8.3%. Service revenues increased $22.1 million, or 61.9%, to
$57.8 million in the first nine months of 1998 from $35.7 million in the first
nine months of 1997. Excluding acquisitions completed in fiscal years 1998 and
1997, service and other revenues increased 48.2%.
GROSS MARGIN. Gross margin was 18.0 % in the third quarter of 1998 compared to
16.5% in the third quarter of 1997. This improved gross margin in the third
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 13.7% in the third quarter of fiscal 1998 compared to 10.7%
in the third 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 margin was 17.5% in the first nine months of fiscal 1998 compared to 16.5%
in the first nine months of fiscal 1997. This improved gross margin in the first
nine months 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 12.6% in the first nine months of
fiscal 1998 compared to 10.2% in the first nine months 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
11.5% and 11.1% for the third quarter and first nine months of fiscal 1998,
respectively, from 10.2% and 10.3% in the third quarter and first nine months of
fiscal 1997, respectively. The increase in selling, general and administrative
expenses expressed as a percentage of total net sales and revenues in the third
quarter and first nine months of fiscal 1998 is attributable to the investment
made in technical personnel to generate the increase in service revenues. Total
operating expenses expressed as a percentage of total net sales and revenues
increased to 12.4% and 12.0% in the third quarter and first nine months of 1998,
respectively, from 10.9% and 11.1% in the third quarter and first nine months of
1997, respectively. This increase in total operating expenses expressed as a
percentage of total net sales and revenues in the third quarter and first nine
months of fiscal 1998 is attributable to the same factors described above.
9 of 14
INCOME FROM OPERATIONS. Income from operations increased $2.0 million, or 27.8%,
to $9.2 million in the third quarter of fiscal 1998 from $7.2 million in the
third quarter of fiscal 1997. The Company's operating margin increased to 5.6%
in the third quarter of fiscal 1998 as compared to 5.5% in the same period in
fiscal 1997.
Income from operations increased $6.6 million, or 35.5%, to $25.2 million in the
first nine months of fiscal 1998 from $18.6 million in the first nine months of
fiscal 1997. Operating margin was 5.5% in the first nine months of fiscal 1998
as compared to 5.3% in the comparable period of fiscal 1997.
INTEREST EXPENSE. Interest expense was $0.7 million and $2.0 million in the
third quarter and first nine months of fiscal 1998 compared with $0.2 million
and $0.6 million in the third quarter and first nine months of fiscal 1997. This
increase in the third quarter and first nine months 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 third quarter
and first nine months of fiscal 1998 compared to 36.0% in the third quarter and
first nine months of fiscal 1997.
NET INCOME. Net income increased $0.9 million, or 20.0%, to $5.4 million in the
third quarter of fiscal 1998 from $4.5 million in the third quarter of fiscal
1997. This increase was a result of the factors described previously. Net income
increased $3.2 million, or 27.8%, to $14.7 million in the first nine months of
fiscal 1998 from $11.5 million in the first nine months of fiscal 1997. This
increase was a result of the factors described previously.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $2.3 million in the first nine months of
fiscal 1998. Cash used in investing activities included $11.2 million for
acquisitions and $2.7 million for capital expenditures. Cash provided by
financing activities included $16.8 million of net borrowings on bank notes
payable and $1.7 million from the exercise of stock options less $1.0 million of
repayments on various notes payable and $0.1 million for the purchase of
treasury stock.
On July 14, 1998, the Company finalized a $120.0 million line of credit with
Deutsche Financial Services ("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
utilizes thirty day notes and provides 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 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. A less significant part of the Company's
inventories is financed by a floor plan arrangement with IBM Credit Corporation
("ICC"). At October 5, 1998, this line of credit totaled $12.0 million.
Borrowings under the ICC floor plan arrangement are made on sixty day notes,
with one-half of the note amount due in thirty days. All such borrowings are
secured by the related inventory. Financing is substantially interest free due
to subsidies by manufacturers. The average interest rate on the plan is less
than 1.0% per annum. The Company classifies amounts outstanding under the floor
plan arrangements as accounts payable.
10 of 14
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
Year 2000 Issues
The following is a discussion of the Year 2000 date issue ("Year 2000 issue") as
it affects the Company. The Year 2000 issue arises from the fact that many
computer programs and embedded chips in other forms of technology use only the
last two digits to identify a year in a date field.
The Company's State of Readiness.
The Company currently believes its potential exposure to problems arising from
the Year 2000 issue lies primarily in two areas:
- - The Company's internal operating systems which include both Information
technology ("IT") and non-IT components (such as computer chips imbedded in
hardware).
- - Compliance with the Year 2000 issue by third parties with whom the Company
has a material relationship.
Internal operating systems:
The Company is heavily dependent upon complex computer systems (IT technology)
for all phases of its operations, which include sales and distribution. The
Company began addressing the affect of the Year 2000 issue in 1996. The Company
has completed an assessment of its principle IT technology systems and modules.
The Company has determined that these systems and modules are Year 2000
compliant based on systematic testing conducted by Company personnel and outside
consultants. There may be some non-critical applications that are not Year 2000
compliant. The Company is completing a four-phase program to identify and
resolve this exposure:
1. To the extent practical, systematically test and verify equipment and
facility systems that contain non-IT components.
2. Test non-critical applications and assess whether any non-compliant
applications should be replaced, upgraded or discontinued. Continue to test and
verify that the Company's principle IT systems and modules are Year 2000
compliant.
3. Use internal programmers and outside consultants to upgrade or replace
any non-compliant applications to be continued and to upgrade any other systems
and modules determined to be non-compliant.
4. Replace non-IT components that are not Year 2000 compliant.
The Company estimates that it will complete its assessment of non-IT technology
and non-critical applications for its IT technology by the end of the first
quarter of fiscal 1999.
Third party relationships:
The Company is continuing to assess the Year 2000 issue with respect to its
third party relationships. Although the Company is rarely dependent on a single
source of supply for IT and non-IT components, the failure of a selected
supplier to timely deliver Year 2000 compliant IT and non-IT components could
jeopardize the Company's ability to meet its required delivery schedules. The
Company is pursuing a two-phase program to identify and resolve Year 2000
exposure from third parties:
1. Develop a supplier compliance warranty for incorporation in all purchase
orders issued after June 30, 1999. That warranty will require suppliers selling
IT and non-IT components to the Company to certify that items delivered are Year
2000 compliant and require them to correct or replace any such item found to be
non compliant. The Company estimates that it will complete its assessment
relating to third party suppliers and development of its supplier compliance
warranty by the end of the first quarter of fiscal 1999.
11 of 14
2. Develop alternative sources for IT and non-IT components that are Year
2000 compliant in the event existing suppliers are not able to meet compliance
requirements.
3. The Company is also dependent on third party service providers, such as
telephone companies, banks and insurance carriers; however, the Company does not
believe it has significant Year 2000 exposure from those providers and has not
implemented any programs to assure Year 2000 compliance by them.
Costs to address the Company's Year 2000 issues.
Other than time spent by the Company's internal information technology and other
personnel, the Company has not incurred any significant costs in identifying
year 2000 issues. The Company does not anticipate any significant costs to make
its internal systems year 2000 compliant because no remediation is expected to
be required. Because no material year 2000 issues have yet been identified in
connection with external sources, the Company cannot reasonably estimate costs
which may be required for remediation or for implementation of contingency
plans. As the Company gathers additional information relating to Year 2000
issues and the readiness of its third party providers, the Company will
reevaluate its ability to estimate costs associated with year 2000 issues. There
can be no assurance that as additional year 2000 issues are addressed, the
Company's costs to remediate such issues will be consistent with its historical
costs.
Risks of the Company's Year 2000 issues.
The Company believes the most reasonably likely worst case Year 2000 scenario
would include a combination of some or all of the following:
- - - Internal IT modules or systems may fail to operate or may give erroneous
information. Such failure could result in shipping delays, inability to
generate or delays in generation of financial reports and statements, inability
of the Company to communicate with its branch offices, and computer network
downtime resulting in numerous inefficiencies and higher payroll expenses.
- - Non-IT components in HVAC, lighting, telephone, security and similar
systems might fail and cause the entire system to fail.
- - - Communications with customers that depend upon IT or non-IT technology,
such as EDI (including automatic ordering by and for customers), and obtaining
current pricing from vendors, may fail or give erroneous information. These
types of problems could result in such difficulties as the inability to receive
or process customer orders, shipping delays, or sale of products at erroneous
prices.
- - - The unavailability of product as a result of Year 2000 problems
experienced by one or more key vendors of the Company, or as a result of changes
in inventory levels of aggregators, VARs and similar providers in response to an
anticipated Year 2000 problem and/or the inability of the Company to develop
alternative sources for products.
- - - Products sold to some of the Company's customers could fail to perform
some or all of their intended functions. In such a situation, the Company's
maximum obligation would be to repair or replace the defective products to the
extent the Company is required to do so under manufacturer warranty.
The Company's contingency plans.
The Company believes its plans for addressing the Year 2000 issue as outlined
above are adequate to handle the most reasonably likely worst case scenario. The
Company does not believe it will incur a material financial impact for the risk
of failure, or from the costs associated with assessing the risks of failure,
arising from the Year 2000 issue. Consequently, the Company does not intend to
create a contingency plan other than as set forth above. In addition, if the
Company's assessment of its vendors, when completed, indicates that certain
product shortages can be anticipated, the Company has the capacity to maintain
additional levels of inventory and may adjust its plans accordingly.
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PART II - OTHER INFORMATION
Items 1 to 3 None
Item 4 Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
On July 22, 1998 the Company held its annual meeting of stockholders for the
following purposes:
1. To elect seven directors;
2. To approve an increase in the number of shares of common stock reserved for
issuance under the Company's 1992 Non-Qualified and Incentive Stock Option Plan
from 1,350,000 shares to 1,850,000 shares.
The voting on the above matters by the stockholders was as follows:
Matter For Withheld
- ----------------------------------------- --------- ---------
Election of Directors:
- -----------------------------------------
David B. Pomeroy, II. . . . . . . . . . . 9,877,166 478,409
Richard C. Mills. . . . . . . . . . . . . 9,876,216 479,359
Stephen E. Pomeroy. . . . . . . . . . . . 9,872,619 482,956
Michael E. Rohrkemper . . . . . . . . . . 9,877,616 477,959
James H. Smith, III . . . . . . . . . . . 9,877,616 477,959
David W. Rosenthal. . . . . . . . . . . . 9,877,316 478,259
Kenneth R. Waters . . . . . . . . . . . . 9,877,116 478,459
For Against
--------- ---------
Approve an increase in the number of
shares of common stock reserved for
issuance under the Company's 1992 Non-
Qualified and Incentive Stock Option Plan
from 1,350,000 shares to 1,850,000 shares 8,271,680 2,061,726
Item 5 None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
- ------------
10(i)(dd)(1) Business Credit and Security Agreement among Pomeroy Computer
Resources, Inc. and Deutsche Financial Services Corporation,
dated July 14,1998.
11 Computation of Per Share Earnings
27.0 Financial Data Schedule for the Quarter Ended October 5, 1998
27.1 Restated Financial Data Schedule for the Quarter Ended October
5, 1997
27.2 Restated Financial Data Schedule for the Quarter Ended October
5, 1996
(b) Reports on Form 8-K None
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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 12, 1998 By: /s/ Stephen E. Pomeroy
----------------------------------
Stephen E. Pomeroy
Chief Financial Officer and Chief
Accounting Officer
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