POMEROY IT Solutions
1020 Petersburg Road
Hebron, KY 41048
Phone: 859.586.0600
September 15, 2006
Securities and Exchange Commission
Attention: Brad Skinner, Accounting Branch Chief
100 F. Street, N.E.
Washington, DC 20549
Re: Pomeroy IT Solutions, Inc.
File No. 000-20022
Dear Mr. Skinner:
Pomeroy IT Solutions, Inc., a Delaware corporation (the "Company" or "Pomeroy"),
hereby submits the additional responses set forth below to your follow-up
Comment Letter, dated August 22, 2006 (the "Comment Letter"), pertaining to the
Company's Form 10-Q filed August 14, 2006. The Company appreciates that the
Commission's comments are designed to assist the Company in providing more
meaningful disclosure to the investment community.
Our responses set forth below correspond to the numbered comments in the Comment
Letter. For your convenience, we have included your original comment from the
Comment Letter followed by the Company's response.
FORM 10-Q FILED AUGUST 14, 2006
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1. PLEASE EXPLAIN TO US YOUR BASIS FOR CLASSIFYING THE CASH OVERDRAFT AS
AN OPERATING CASH FLOW.
Pomeroy follows the guidance provided by Statement of Financial Accounting
Standards No 95 ("FAS 95") in the preparation of its statements of cash
flows. FAS 95 allows for the use of either the Direct Method or the
Indirect Method for the reporting of cash flows. Pomeroy utilizes the
Indirect Method, which starts with net income and adjusts it for revenue
and expense items that were not the result of operating cash transactions
in the current period to reconcile it to net cash flow from operating
activities.
Securities and Exchange Commission
September 15, 2006
Page 2
FAS 95 Paragraph 21 provides that operating activities include all
transactions and other events that are not defined as "investing" or
"financing" activities.
- Investing activities include making and collecting loans and
acquiring and disposing of debt or equity instruments and
property, plant and equipment and other productive assets, that
is, assets held for or used in the production of goods or
services.
- Financing activities include obtaining resources from owners
and providing them with a return on, and a return of, their
investment; borrowing money and repaying amounts borrowed, or
otherwise settling the obligation; and obtaining and paying for
other resources obtained from creditors on long-term credit.
SFAS 95 further explains that operating activities generally involve
producing and delivering goods and providing services, and are generally
the cash effects of transactions and other events that enter into the
determination of income.
The items classified as cash overdraft are simply the result of timing
between when the Company issues checks for payment of accounts payable, and
when the check is presented for payment by the bank. It is directly
associated with unpaid accounts payable related to operating expenses. The
Company's treasury management system has controlled disbursement accounts
that are used to pay accounts payable. This account is funded by our
operating account as checks clear. The operating account is funded
primarily by cash collections, however, if cash is not available borrowings
are made on the Company's line of credit. As of July 5, 2006, the Company
had liquid assets of over $4.5 million and had no outstanding borrowings.
Due to timing of the quarter end and cash collections, at the end of the
second quarter we were in the situation where there were approximately $2.0
million of checks outstanding.
The Company does not believe, based on our facts, the cash overdraft relate
to financing activities. The Company feels that it was justified in its
classification of cash overdraft as an operating cash flow.
The Company acknowledges the SEC has expressed an opinion that generally,
cash overdrafts should be presented as a financing activity in the cash
flow statement. The Company interpreted this guidance to mean that although
generally cash overdrafts should be considered financing activities there
are situations where it could be classified differently. For the reasons
stated above, the Company believes that treatment of this item as an
operating cash flow was appropriate. However, if the SEC believes that the
Company's treatment of cash overdrafts is not appropriate in our situation
we will ensure that future filings classify any cash overdrafts as
financing activities.
2. WE NOTE THAT YOU HAVE NOT COMPLETED THE SECOND STEP OF THE GOODWILL
IMPAIRMENT TEST. PLEASE NOTE THAT WE MAY HAVE FURTHER COMMENT ONCE THE
GOODWILL IMPAIRMENT TEST HAS BEEN COMPLETED AND THE APPROPRIATE
DISCLOSURES ARE PROVIDED.
The Company acknowledges that the Commission may have further comment
related to goodwill impairment testing and disclosure, once the testing is
completed. The Company will address such comments as they are received.
Securities and Exchange Commission
September 15, 2006
Page 3
Thank you for your comments. If you have any questions, please contact our
counsel, Elizabeth A. Horwitz at (513) 852-6032, or me at (859) 586-0600,
ext. 1416.
Sincerely,
/s/Kevin G. Gregory
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Kevin G. Gregory
Senior Vice President & Chief Financial Officer
cc: Elizabeth A. Horwitz, Esq., Wood & Lamping LLP
Sean Henaghan, BDO Seidman, LLP