COMPUCOM SYSTEMS INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the three months ended June 30, 2002

Commission File Number 0-14371

COMPUCOM SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

Delaware		38-2363156
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

7171 Forest Lane, Dallas, TX		75230
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:		(972) 856-3600

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 filing requirements for the past 90 days.

The number of shares of the Registrant’s common stock outstanding as of August 12, 2002 was 48,665,833 shares.

COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets June 30, 2002 and December 31, 2001	3

	Condensed Consolidated Statements of Operations Three and six months ended June 30, 2002 and 2001	4

	Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2002 and 2001	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	26

PART II. OTHER INFORMATION

Item 4.	Submission of Matters to a Vote of Security Holders	27

Item 6.	Exhibits and Reports on Form 8-K	27

COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES

	June 30, 2002		December 31, 2001
Assets
Current assets:
Cash and cash equivalents	$	117,315	$	123,150
Receivables, net		162,901		134,980
Inventories		35,692		29,608
Other		5,406		8,131

Total current assets		321,314		295,869

Property and equipment, net		27,664		31,566

Goodwill		101,804		99,643
Intangible assets, net		9,610		11,446
Other		4,254		5,559

Total assets	$	464,646	$	444,083


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	156,550	$	120,173
Accrued liabilities		64,574		88,598

Total current liabilities		221,124		208,771

Stockholders’ equity:
Preferred stock		15,000		15,000
Common stock		486		498
Additional paid-in capital		72,757		76,252
Retained earnings		155,279		149,131
Treasury stock		—		(5,569	)

Total stockholders’ equity		243,522		235,312


Total liabilities and stockholders’ equity	$	464,646	$	444,083

See accompanying notes to condensed consolidated financial statements.

COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES

Three and Six Months Ended June 30, 2002 and 2001

(In thousands, except per share amounts)

	Three months ended June 30,				Six months ended June 30,
	2002		2001		2002		2001
Revenue:
Product	$	350,290	$	419,718	$	609,559	$	902,079
Service		75,868		68,991		143,547		140,918

Total revenue		426,158		488,709		753,106		1,042,997


Cost of revenue:
Product		324,011		381,824		556,549		822,095
Service		47,893		43,410		92,024		91,744

Total cost of revenue		371,904		425,234		648,573		913,839


Gross margin		54,254		63,475		104,533		129,158

Operating expenses:
Selling		11,510		17,553		23,819		37,102
Service		11,090		13,745		21,916		27,315
General and administrative		18,863		22,267		36,495		44,478
Depreciation and amortization		4,687		5,720		9,474		11,389

Total operating expenses		46,150		59,285		91,704		120,284


Earnings from operations		8,104		4,190		12,829		8,874

Financing expenses, net		241		748		550		2,477

Earnings before income taxes and cumulative effect of a change in accounting principle for negative goodwill		7,863		3,442		12,279		6,397

Income taxes		3,144		1,377		4,910		2,559


Earnings before cumulative effect of a change in accounting principle for negative goodwill		4,719		2,065		7,369		3,838

Cumulative effect of a change in accounting principle for negative goodwill, net of income taxes		—		—		707		—


Net earnings	$	4,719	$	2,065	$	8,076	$	3,838

Basic and diluted earnings per common share:
Earnings before cumulative effect of a change in accounting principle for negative goodwill	$	.09	$	.04	$	.14	$	.07
Cumulative effect of a change in accounting principle for negative goodwill, net of income taxes		—		—		.01		—

Net earnings	$	.09	$	.04	$	.15	$	.07

Average common shares outstanding:
Basic		48,429		47,777		48,401		47,908
Diluted		50,034		48,205		49,547		48,120

See accompanying notes to condensed consolidated financial statements.

COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES

	Six months ended June 30,
	2002			2001
Cash flows from operating activities:
Earnings before cumulative effect of a change in accounting principle for negative goodwill	$	7,369		$	3,838
Adjustments to reconcile earnings before cumulative effect of a change in accounting principle for negative goodwill to net cash provided by (used in) operating activities:
Depreciation and amortization		9,474			11,389
Deferred income taxes		791			(1,102	)
Changes in assets and liabilities, excluding effects from acquisitions:
Receivables		(27,921	)		137,767
Inventories		(6,084	)		50,634
Other current assets		(1,172	)		(266	)
Accounts payable		36,377			8,040
Accrued liabilities and other		(21,660	)		(22,717	)

Net cash provided by (used in) operating activities		(2,826	)		187,583


Cash flows from investing activities:
Capital expenditures		(3,143	)		(10,800	)
Business acquisitions, net of cash acquired		—			(79,309	)

Net cash used in investing activities		(3,143	)		(90,109	)


Cash flows from financing activities:
Borrowings under revolver		—			8,000
Repayments of revolver		—			(8,000	)
Issuance of common stock		584			375
Preferred stock dividends		(450	)		(450	)

Net cash provided by (used in) financing activities		134			(75	)

Net increase (decrease) in cash and cash equivalents		(5,835	)		97,399
Cash and cash equivalents at beginning of period		123,150			14,857

Cash and cash equivalents at end of period	$	117,315		$	112,256

See accompanying notes to condensed consolidated financial statements.

COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES

The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the summary of significant accounting policies and notes thereto included in the 2001 Annual Report on Form 10-K for CompuCom Systems, Inc. (“CompuCom” or “the Company”). In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements contain all adjustments considered necessary for the fair presentation of the results for these interim periods. Interim results are not necessarily indicative of results expected for the full year.

(2) Contingencies

There have been no material developments involving claims and legal actions involving CompuCom during the first half of 2002. CompuCom is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on CompuCom’s consolidated financial position and results of operations, taken as a whole.

(3) Earnings per share

Basic earnings per common share have been computed based on net earnings after preferred stock dividend requirements and the weighted average number of common shares outstanding during each period. Diluted earnings per common share assumes conversion of dilutive convertible securities into common stock at the later of the beginning of the period or date of issuance and includes the add-back of related divi

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