<PAGE>
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, 1995 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)
10100 N. CENTRAL EXPRESSWAY, DALLAS, TX 75231
- - - - - ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 265-3600
--------------
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
----- -----
The number of shares of the Registrant's common stock outstanding as of May 9,
1995 was 33,990,764 shares.
- - - - - --------------------------------------------------------------------------------
This Quarterly Report on Form 10-Q, including all exhibits and attachments,
contains 13 pages. The exhibit index may be found on page 10 of the
consecutively numbered pages of the Quarterly Report on Form 10-Q.
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- - - - - ------- --------------------- ----
<S> <C> <C>
Item 1. Condensed Consolidated Balance Sheets
March 31, 1995 (unaudited) and December 31, 1994 3
Condensed Consolidated Statements of Operations
Three months ended March 31, 1995 and 1994 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1995 and 1994 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
- - - - - -------- -----------------
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
-------------- --------------
(unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash $ 4,024 $ 4,076
Receivables 212,574 233,589
Inventories 144,675 155,561
Other 2,078 2,145
---------- ----------
Total current assets 363,351 395,371
Property and equipment, net 16,696 15,910
Cost in excess of fair value of tangible
net assets purchased, less accumulated
amortization 12,254 12,498
Other assets 5,523 5,752
---------- ----------
$ 397,824 $ 429,531
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 120,831 $ 154,342
Accrued liabilities 35,479 37,623
---------- ----------
Total current liabilities 156,310 191,965
Long-term debt 119,348 118,974
Deferred income taxes 5,404 6,010
Convertible subordinated notes 18,309 18,214
Shareholders' equity:
Preferred stock 20,000 20,000
Common stock 340 337
Additional paid-in capital 28,636 28,164
Retained earnings from July 1, 1987 49,477 45,867
---------- ----------
Total shareholders' equity 98,453 74,368
---------- ----------
$ 397,824 $ 429,531
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended March 31, 1995 and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(unaudited)
<S> <C> <C>
Net revenues $ 323,487 $ 280,857
Cost of revenues 273,805 244,716
--------- ---------
Gross margin 49,682 36,141
--------- ---------
Expenses:
Selling 29,637 21,117
General and administrative 8,968 6,847
Interest 3,237 2,498
Depreciation and amortization 1,449 1,071
--------- ---------
43,291 31,533
--------- ---------
Earnings before income taxes 6,391 4,608
Income taxes 2,556 1,843
--------- ---------
Net earnings $ 3,835 $ 2,765
========= =========
Earnings per common share:
Primary $ .10 $ .08
Fully diluted $ .09 $ .07
Average common shares outstanding:
Primary 35,714 35,949
Fully diluted 44,123 44,366
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,835 $ 2,765
Adjustments to reconcile net earnings to net
cash provided/(used) in operating activities:
Depreciation and amortization 1,449 1,071
Other (307)
Deferred income taxes (606)
Changes in assets and liabilities:
Receivables 21,715 22,409
Inventories 10,886 (25,616)
Other current assets 67 (360)
Accounts payable (33,511) (4,443)
Accrued liabilities and other (1,833) (3,025)
-------- --------
Net cash provided/(used) by operating
activities 2,002 (7,506)
-------- --------
Cash flows from investing activities:
Capital expenditures, net (1,367) (930)
Net assets of businesses acquired (1,185)
-------- --------
Net cash used by investing
activitiies (2,552) (930)
-------- --------
Cash flows from financing activities:
Net borrowings under bank credit facility 374 323
Issuance of preferred stock 5,000
Exercise of warrants and options 349 2,590
Preferred stock dividend (225)
-------- --------
Net cash provided by financing
activities 498 7,913
-------- --------
Net decrease in cash (52) (523)
Cash at beginning of period 4,076 3,941
-------- --------
Cash at end of period $ 4,024 $ 3,418
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1995
(1) General
-------
These condensed interim consolidated 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
Company's 1994 Annual Report on Form 10-K. The information furnished is
unaudited but reflects all adjustments consisting only of normal recurring
accruals which are, in the opinion of management, necessary to present a
fair statement of the results for these interim periods. Interim results
are not necessarily indicative of results expected for the full year.
(2) Contingencies
-------------
The Company is involved in various claims and legal actions arising in
the ordinary course of business with enterprises in both the public and
private sector. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position.
(3) Reclassifications
-----------------
Certain amounts in the 1994 condensed consolidated financial statements
have been reclassified to conform with the 1995 presentation.
6
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
March 31, 1995
Results of Operations
- - - - - ---------------------
The following table shows the Company's gross margin and expenses, as a
percentage of net revenues, for the three months ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Gross margin 15.4% 12.9%
Operating expenses:
Selling 4.5 4.6
Service 4.6 3.0
General and administrative 2.8 2.4
Depreciation and amortization 0.5 0.4
---- ----
12.4 10.4
---- ----
Operating earnings 3.0 2.5
Interest 1.0 0.9
---- ----
Earnings before income taxes 2.0 1.6
Income taxes 0.8 0.6
---- ----
Net earnings 1.2% 1.0%
==== ====
</TABLE>
Net revenues for the quarter ended March 31, 1995 increased 15% from the same
period in 1994 to $323.5 million. The higher revenues reflect the continued
demand by corporate customers for personal computers, as well as the Company's
focus on expanding its network and technology services. The Company's first
quarter net revenues reflects an increase in service revenue of 80% over the
first quarter of 1994, and includes revenue from three acquisitions in the
service arena, International Micronet Systems, acquired in December 1994, and
certain assets related to Allerion Corporation and Benchmark Corporation, both
acquired during the first quarter of 1995. The Company believes the increase in
net revenues can also be attributed to the weakened financial condition of
certain competitors, as corporate customers consolidate their outsourcing needs
and reduce the number of providers to one or two compared to several. In
addition, the Company has remained focused on its selling strategies and
providing quality service.
(Continued)
7
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Gross margin as a percentage of net revenues for the first quarter 1995
increased when compared to the same quarter in 1994. This increase is
principally due to higher product margins and the increase in service-related
activity resulting from the Company's emphasis on the growth of the service
business. The increase in product margins is primarily a result of continued
price decreases related to certain products from manufacturers and less price
competition in the marketplace, partially influenced by poor financial results
of certain competitors. In addition, gross margin was positively impacted by
the increase in existing services combined with the service-related acquisitions
previously discussed. As service margin increases at a rate greater than
product margin, overall gross margin is favorably impacted due to service
margins as a percentage of service net revenues being higher than product
margin. The Company participates in certain manufacturer-sponsored programs
designed to increase sales of specific products. These programs, excluding
volume rebates, are not material when compared to the Company's overall
financial results.
Operating expenses for the first quarter of 1995 increased $11.4 million from
the comparable period of 1994 to support the significant revenue growth. The
significant increase in service expenses, both in terms of absolute dollars and
as a percentage of net revenue, reflects the expenses related to the overall
service revenue growth, including the more recent acquisitions. Also
contributing to the increase of service-related expenses is the Company's
planned development of an infrastructure necessary to manage and expand its
growing service business. General and administrative expenses also increased
over the prior year, primarily due to the Company's investment in MIS resources
required to enhance customer satisfaction, particularly in the service segment.
The Company's operating expenses are reported net of reimbursements by certain
manufacturers for specific training, promotional and marketing programs. These
reimbursements offset the expenses incurred by the Company.
Depreciation and amortization expense increased as a percentage of net
revenues and in absolute dollars for the quarter ended March 31, 1995. The
increase can be attributed primarily to amortization expense associated with the
Company's recent acquisitions.
Interest expense increased in absolute dollars by $0.7 million and also as a
percentage of net revenues for the quarter ended March 31, 1995 primarily as a
result of the higher working capital needs to support the Company's revenue
growth and an increase in the effective interest rate.
As a result of the factors discussed above net earnings increased 39% to $3.8
million in 1995 from $2.8 million in 1994. Future improved profitability will
depend on competition, manufacturer product pricing changes and product
availability, as well as the Company's control of operating expenses, increased
focus on providing technical service and support to customers, and effective
utilization of vendor programs.
Liquidity and Capital Resources
-------------------------------
During recent years, the Company has utilized equity financing, operating
earnings, the bank credit facility and long-term subordinated notes to fund its
significant revenue growth and related operating asset requirements. The Company
maintains a satisfactory relationship with several banks and has a $150 million
bank revolving credit facility, subject to certain collateral restrictions, with
a major bank group. At March 31, 1995 approximately $119 million of this
facility was outstanding, with an additional $31 million available for
borrowing. Negotiations are currently underway to increase the bank credit
facility to $175 million in the second quarter of 1995 to support the Company's
projected net revenue growth.
(Continued)
8
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Working capital at March 31, 1995 is $207 million compared to $203 million at
December 31, 1994 resulting in an increase in the working capital ratio from 2.1
to 2.3. Inventory levels were lower at March 31, 1995 when compared to December
31, 1994, principally due to the Company's renewed focus on improving inventory
turns. Accounts receivable declined when compared to December 1994 due to lower
net revenues in the first quarter of 1995 compared to the fourth quarter of
1994. The decline in accounts payable is principally due to the timing of
product shipments, which were higher in the fourth quarter of 1994 to support
the seasonally high net revenues.
The business is not capital asset intensive, and capital expenditures in any
year normally would not be significant in relation to total assets. Capital
asset requirements are generally funded through internally generated funds, the
bank credit facility or leasing sources. Capital expenditures are expected to
be approximately $5 million in 1995, of which approximately $1.4 million was
spent during the first quarter. There are no material capital asset purchase
commitments at March 31, 1995.
9
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- - - - - ------- --------------------------------
(a) Exhibits
--------
Exhibit
No. Description
--- -----------
11 Computation of Per Share Earnings
27 Financial Data Schedule
No other exhibits are required to be filed by the Registrant during the
three months ended March 31, 1995.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed by the Registrant during the
three months ended March 31, 1995.
10
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Signatures
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.
COMPUCOM SYSTEMS, INC.
------------------------------------
(Registrant)
DATE: May 12, 1995 /s/ Edward Anderson
-------------------------------------
Edward Anderson,
President and Chief Executive Officer
DATE: May 12, 1995 /s/ Robert J. Boutin
-------------------------------------
Robert J. Boutin,
Senior Vice President, Finance and
Chief Financial Officer
11
<PAGE>
EXHIBIT 11
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Exhibit 11 - Computation of Per Share Earnings
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1995 1994
--------- ---------
(unaudited)
<S> <C> <C>
Primary earnings per common share
- - - - - ---------------------------------
Net earnings $ 3,835 $ 2,765
Preferred dividend (300)
-------- --------
3,535 $ 2,765
======== ========
Average common shares outstanding 33,900 32,479
Average common share equivalents:
Options 1,740 3,017
Warrants 74 453
-------- --------
Average number of common shares and
common share equivalents outstanding 35,714 35,949
======== ========
Primary earnings per common share $ .10 $ .08
======== ========
Fully diluted earnings per common share
- - - - - ---------------------------------------
Primary net earnings $ 3,835 $ 2,765
Preferred dividend (300)
Interest expense, net of income tax expense 250 250
-------- --------
$ 3,785 $ 3,015
======== ========
Average number of common shares and
common share equivalents outstanding 35,714 35,949
Additional shares issuable 8,409 8,417
-------- --------
Average number of common shares
assuming full dilution 44,123 44,366
======== ========
Fully diluted earnings per common share $ .09 $ .07
======== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet as of March 31, 1995 and the Condensed
Consolidated Statement of Operations for the three months ended March 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 4,024
<SECURITIES> 0
<RECEIVABLES> 214,635
<ALLOWANCES> (2,061)
<INVENTORY> 144,675
<CURRENT-ASSETS> 363,351
<PP&E> 25,225
<DEPRECIATION> (8,529)
<TOTAL-ASSETS> 397,824
<CURRENT-LIABILITIES> 156,310
<BONDS> 119,348
<COMMON> 340
0
20,000
<OTHER-SE> 78,113
<TOTAL-LIABILITY-AND-EQUITY> 397,824
<SALES> 323,487
<TOTAL-REVENUES> 323,487
<CGS> 273,805
<TOTAL-COSTS> 273,805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,237
<INCOME-PRETAX> 6,391
<INCOME-TAX> 2,556
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,835
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.09
</TABLE>
