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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the Three Months Ended: September 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
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
7171 Forest Lane, Dallas, TX 75230
(Address of principal executive offices, including zip code)
 
(972) 856-3600
(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 filing requirements for the past 90 days.    Yes  x    No  ¨
 
The number of shares of the Registrant’s common stock outstanding as of November 12, 2002 was 48,965,090 shares.
 


Table of Contents

COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES

Index
 
         
Page

PART I.
  
FINANCIAL INFORMATION
    
Item 1.
  
Financial Statements (unaudited)
    
       
3
       
4
       
5
       
6
Item 2.
     
17
Item 3.
     
28
Item 4.
     
28
PART II.
  
OTHER INFORMATION
    
Item 1.
     
29
Item 6.
     
29

2


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COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
 
    
September 30, 2002

  
December 31, 2001

 
Assets
      
Current assets:
               
Cash and cash equivalents
  
$
124,434
  
$
123,150
 
Receivables, net
  
 
150,087
  
 
134,980
 
Inventories
  
 
36,341
  
 
29,608
 
Other
  
 
5,604
  
 
8,131
 
    

  


Total current assets
  
 
316,466
  
 
295,869
 
Property and equipment, net
  
 
25,750
  
 
31,566
 
Goodwill
  
 
101,967
  
 
99,643
 
Intangible assets, net
  
 
8,714
  
 
11,446
 
Other
  
 
4,007
  
 
5,559
 
    

  


Total assets
  
$
456,904
  
$
444,083
 
    

  


Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
  
$
137,312
  
$
120,173
 
Accrued liabilities
  
 
70,075
  
 
88,598
 
    

  


Total current liabilities
  
 
207,387
  
 
208,771
 
Stockholders’ equity:
               
Preferred stock
  
 
15,000
  
 
15,000
 
Common stock
  
 
489
  
 
498
 
Additional paid-in capital
  
 
73,517
  
 
76,252
 
Retained earnings
  
 
160,511
  
 
149,131
 
Treasury stock
  
 
—  
  
 
(5,569
)
    

  


Total stockholders’ equity
  
 
249,517
  
 
235,312
 
    

  


Total liabilities and stockholders’ equity
  
$
456,904
  
$
444,083
 
    

  


 
See accompanying notes to condensed consolidated financial statements.

3


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COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2002 and 2001
(In thousands, except per share amounts)
(unaudited)
 
    
Three months ended
September 30,

  
Nine months ended
September 30,

    
2002

    
2001

  
2002

  
2001

Revenue:
                             
Product
  
$
333,081
 
  
$
332,877
  
$
942,640
  
$
1,234,956
Service
  
 
81,008
 
  
 
71,883
  
 
224,555
  
 
212,801
    


  

  

  

Total revenue
  
 
414,089
 
  
 
404,760
  
 
1,167,195
  
 
1,447,757
    


  

  

  

Cost of revenue:
                             
Product
  
 
306,955
 
  
 
299,792
  
 
863,504
  
 
1,121,887
Service
  
 
54,574
 
  
 
45,638
  
 
146,598
  
 
137,382
    


  

  

  

Total cost of revenue
  
 
361,529
 
  
 
345,430
  
 
1,010,102
  
 
1,259,269
    


  

  

  

Gross margin
  
 
52,560
 
  
 
59,330
  
 
157,093
  
 
188,488
Operating expenses:
                             
Selling
  
 
11,286
 
  
 
14,927
  
 
35,105
  
 
52,029
Service
  
 
10,223
 
  
 
14,359
  
 
32,139
  
 
41,674
General and administrative
  
 
17,770
 
  
 
22,446
  
 
54,265
  
 
66,924
Depreciation and amortization
  
 
4,380
 
  
 
5,205
  
 
13,854
  
 
16,594
    


  

  

  

Total operating expenses
  
 
43,659
 
  
 
56,937
  
 
135,363
  
 
177,221
    


  

  

  

Earnings from operations
  
 
8,901
 
  
 
2,393
  
 
21,730
  
 
11,267
Financing expense, net
  
 
(27
)
  
 
455
  
 
523
  
 
2,932
    


  

  

  

Earnings before income taxes and cumulative effect of a change in accounting principle for negative goodwill
  
 
8,928
 
  
 
1,938
  
 
21,207
  
 
8,335
Income taxes
  
 
3,471
 
  
 
776
  
 
8,381
  
 
3,335
    


  

  

  

Earnings before cumulative effect of a change in accounting principle for negative goodwill
  
 
5,457
 
  
 
1,162
  
 
12,826
  
 
5,000
Cumulative effect of a change in accounting principle for negative goodwill, net of income taxes
  
 
—  
 
  
 
—  
  
 
707
  
 
—  
    


  

  

  

Net earnings
  
$
5,457
 
  
$
1,162
  
$
13,533
  
$
5,000
    


  

  

  

Basic earnings per common share:
                             
Earnings before cumulative effect of a change in accounting principle for negative goodwill
  
$
.11
 
  
$
.02
  
$
.25
  
$
.09
Cumulative effect of a change in accounting principle for negative goodwill, net of income taxes
  
 
—  
 
  
 
—  
  
 
.01
  
 
—  
    


  

  

  

Net earnings
  
$
.11
 
  
$
.02
  
$
.26
  
$
.09
    


  

  

  

Diluted earnings per common share:
                             
Earnings before cumulative effect of a change in accounting principle for negative goodwill
  
$
.10
 
  
$
.02
  
$
.24
  
$
.09
                               
Cumulative effect of a change in accounting principle for negative goodwill, net of income taxes
  
 
—  
 
  
 
—  
  
 
.01
  
 
—  
    


  

  

  

Net earnings
  
$
.10
 
  
$
.02
  
$
.25
  
$
.09
    


  

  

  

Average common shares outstanding:
                             
Basic
  
 
48,734
 
  
 
48,146
  
 
48,513
  
 
47,988
Diluted
  
 
51,001
 
  
 
49,355
  
 
50,154
  
 
48,557
 
See accompanying notes to condensed consolidated financial statements.

4


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COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
    
Nine months ended September 30,

 
    
2002

    
2001

 
Cash flows from operating activities:
                 
Earnings before cumulative effect of a change in accounting principle for negative goodwill
  
$
12,826
 
  
$
5,000
 
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
  
 
13,854
 
  
 
16,594
 
Deferred income taxes
  
 
503
 
  
 
(1,856
)
Changes in assets and liabilities, excluding effects from acquisitions:
                 
Receivables
  
 
(15,107
)
  
 
154,199
 
Inventories
  
 
(6,644
)
  
 
54,119
 
Other current assets
  
 
(1,361
)
  
 
(1,552
)
Accounts payable
  
 
17,139
 
  
 
(9,599
)
Accrued liabilities and other
  
 
(16,450
)
  
 
(10,126
)
    


  


Net cash provided by operating activities
  
 
4,760
 
  
 
206,779
 
    


  


Cash flows from investing activities:
                 
Capital expenditures
  
 
(4,148
)
  
 
(16,528
)
Business acquisitions, net of cash acquired
  
 
—  
 
  
 
(104,338
)
    


  


Net cash used in investing activities
  
 
(4,148
)
  
 
(120,866
)
    


  


Cash flows from financing activities:
                 
Borrowings under revolver
  
 
—  
 
  
 
8,000
 
Repayments of revolver