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 March 31, 2003 |
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) |
(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.
Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ¨
The number of shares of the Registrant’s common stock outstanding as of May 9, 2003 was 49,397,348 shares.
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Index
| PART I. |
FINANCIAL INFORMATION |
Page | ||
| Item 1. |
Financial Statements (unaudited) |
|||
| Condensed Consolidated Balance Sheets March 31, 2003 and December 31, 2002 |
3 | |||
| Condensed Consolidated Statements of Operations Three months ended March 31, 2003 and 2002 |
4 | |||
| Condensed Consolidated Statements of Cash Flows Three months ended March 31, 2003 and 2002 |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||
| Item 3. |
20 | |||
| Item 4. |
20 | |||
| PART II. |
OTHER INFORMATION |
|||
| Item 1. |
21 | |||
| Item 6. |
21 |
2
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
| March 31, 2003 |
December 31, 2002 | |||||
| Assets |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ |
138,849 |
$ |
128,039 | ||
| Receivables, net |
|
93,440 |
|
146,732 | ||
| Inventories |
|
23,338 |
|
27,732 | ||
| Other |
|
6,267 |
|
6,899 | ||
| Total current assets |
|
261,894 |
|
309,402 | ||
| Property and equipment, net |
|
23,217 |
|
23,924 | ||
| Goodwill |
|
102,253 |
|
102,253 | ||
| Intangible assets, net |
|
7,006 |
|
7,818 | ||
| Other |
|
1,312 |
|
1,461 | ||
| Total assets |
$ |
395,682 |
$ |
444,858 | ||
| Liabilities and Stockholders’ Equity |
||||||
| Current liabilities: |
||||||
| Accounts payable |
$ |
86,023 |
$ |
117,252 | ||
| Accrued liabilities |
|
49,972 |
|
71,115 | ||
| Total current liabilities |
|
135,995 |
|
188,367 | ||
| Stockholders’ equity: |
||||||
| Preferred stock |
|
15,000 |
|
15,000 | ||
| Common stock |
|
493 |
|
493 | ||
| Additional paid-in capital |
|
75,293 |
|
75,221 | ||
| Retained earnings |
|
168,901 |
|
165,777 | ||
| Total stockholders’ equity |
|
259,687 |
|
256,491 | ||
| Total liabilities and stockholders’ equity |
$ |
395,682 |
$ |
444,858 | ||
See accompanying notes to condensed consolidated financial statements.
3
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
| Three months ended | ||||||
| March 31, | ||||||
| 2003 |
2002 | |||||
| Revenue: |
||||||
| Product |
$ |
257,418 |
$ |
259,269 | ||
| Service |
|
72,879 |
|
67,679 | ||
| Total revenue |
|
330,297 |
|
326,948 | ||
| Cost of revenue: |
||||||
| Product |
|
235,299 |
|
232,538 | ||
| Service |
|
50,306 |
|
44,131 | ||
| Total cost of revenue |
|
285,605 |
|
276,669 | ||
| Gross margin |
|
44,692 |
|
50,279 | ||
| Operating expenses: |
||||||
| Selling |
|
10,659 |
|
12,309 | ||
| Service |
|
9,251 |
|
10,826 | ||
| General and administrative |
|
14,935 |
|
17,632 | ||
| Depreciation and amortization |
|
4,180 |
|
4,787 | ||
| Total operating expenses |
|
39,025 |
|
45,554 | ||
| Earnings from operations |
|
5,667 |
|
4,725 | ||
| Financing expenses, net |
|
85 |
|
309 | ||
| Earnings before income taxes and cumulative effect of a change in accounting principle for negative goodwill |
|
5,582 |
|
4,416 | ||
| Income taxes |
|
2,233 |
|
1,766 | ||
| Earnings before cumulative effect of a change in accounting principle for negative goodwill |
|
3,349 |
|
2,650 | ||
| Cumulative effect of a change in accounting principle for negative goodwill, net of income taxes |
|
— |
|
707 | ||
| Net earnings |
$ |
3,349 |
$ |
3,357 | ||
| Basic and diluted earnings per common share: |
||||||
| Earnings before cumulative effect of a change in accounting principle for negative goodwill |
$ |
.06 |
$ |
.05 | ||
| Cumulative effect of a change in accounting principle for negative goodwill, net of income taxes |
|
— |
|
.01 | ||
| Net earnings |
$ |
.06 |
$ |
.06 | ||
| Average common shares outstanding: |
||||||
| Basic |
|
49,308 |
|
48,372 | ||
| Diluted |
|
51,150 |
|
49,192 | ||
See accompanying notes to condensed consolidated financial statements.
4
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
| Three months ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net earnings |
$ |
3,349 |
|
$ |
3,357 |
| ||
| Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: |
||||||||
| Cumulative effect of a change in accounting principle for negative goodwill, net of income taxes |
|
— |
|
|
(707 |
) | ||
| Depreciation and amortization |
|
4,180 |
|
|
4,787 |
| ||
| Deferred income taxes |
|
983 |
|
|
421 |
| ||
| Changes in assets and liabilities: |
||||||||
| Receivables |
|
53,292 |
|
|
22,368 |
| ||
| Inventories |
|
4,394 |
|
|
(1,678 |
) | ||
| Other current assets |
|
(397 |
) |
|
(1,442 |
) | ||
| Accounts payable |
|
(31,229 |
) |
|
(7,981 |
) | ||
| Accrued liabilities and other |
|
(21,282 |
) |
|
(31,367 |
) | ||
| Net cash provided by (used in) operating activities |
|
13,290 |
|
|
(12,242 |
) | ||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
|
(2,327 |
) |
|
(1,294 |
) | ||
| Net cash used in investing activities |
|
(2,327 |
) |
|
(1,294 |
) | ||
| Cash flows from financing activities: |
||||||||
| Issuance of common stock |
|
72 |
|
|
55 |
| ||
| Preferred stock dividends |
|
(225 |
) |
|
(225 |
) | ||
| Net cash used in financing activities |
|
(153 |
) |
|
(170 |
) | ||
| Net increase (decrease) in cash and cash equivalents |
|
10,810 |
|
|
(13,706 |
) | ||
| Cash and cash equivalents at beginning of period |
|
128,039 |
|
|
123,150 |
| ||
| Cash and cash equivalents at end of period |
$ |
138,849 |
|
$ |
109,444 |
| ||
See accompanying notes to condensed consolidated financial statements.
5
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(unaudited)
| (1) | General |
These 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 2002 Annual Report on Form 10-K for CompuCom Systems, Inc. (“CompuCom” or “the Company”). The information furnished is unaudited but reflects all adjustments, consisting only of normal recurring accruals, which are in the opinion of management necessary for a fair presentation of the results for these interim periods. Interim results are not necessarily indicative of results expected for the full year.
| (2) | Contingencies |
CompuCom is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, these matters are not material.
| (3) | Earnings per share |
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “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 dividends, as required. Diluted earnings per common share also assumes the exercise of all options with an exercise price below the average market price of the Company’s stock, at the later of the beginning of the period or date of issuance, regardless of whether the options are vested or not. Earnings per common share have been computed as follows (in thousands, except per share amounts):
| Three months ended March 31,2003 | |||||||||
| Earnings (Numerator) |
Shares (Denominator) |
EPS | |||||||
| Net earnings |
$ |
3,349 |
|
||||||
| Less: Preferred stock dividends |
|
(225 |
) |
||||||
| Basic EPS |
|||||||||
| Earnings available to common shareholders |
|
3,124 |
|
49,308 |
$ |
.06 | |||
| Effect of dilutive securities |
|||||||||
| Stock options |
1,776 |
||||||||
| Employee stock purchase plan |
66 |
&n | |||||||