CompuCom Reports 2nd Quarter 2004 Results

Business Wire, August 3, 2004

DALLAS -- CompuCom Systems, Inc. (Nasdaq:CMPC), a national leader in helping companies plan, implement and manage multi-vendor, industry standard computing environments, today announced operating results for the second quarter ended June 30, 2004. Second quarter 2004 pro forma net earnings (See Note 1) were $2.87 million, or $.05 diluted earnings per share, excluding charges and expenses relating to the previously announced proposed merger with an affiliate of Platinum Equity, LLC. As previously disclosed, in connection with the proposed merger, CompuCom anticipated recording in the second quarter a non-cash charge relating to the impairment of goodwill in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", as well as recording certain fees and expenses associated with the proposed merger. Including the non-cash charge relating to the impairment of goodwill of $33.4 million and certain fees and expenses of $1.9 million, CompuCom recognized a net loss in the quarter of $22.3 million, or $.45 diluted loss per share. This compares to second quarter 2003 net earnings of $3.28 million, or $.06 diluted earnings per share. Revenue for the quarter was $341.9 million compared to revenue of $377.7 million in the same period in 2003.

J. Edward Coleman, CompuCom's chairman, president and chief executive officer, commented on today's announcement. "Our second quarter results further demonstrate CompuCom's transition to a service-led business model, with service revenue increasing 11% from a year ago to $81 million. This strength in services resulted in a year over year improvement in total gross margin percent to 12.3% from 11.5%. As a percentage of total gross margin dollars, service represented 61.6%, an increase of over six points from a year ago".

"While the importance of our transition to service and solutions is underscored by gross margin pressure in the product business, CompuCom's ability to provide world-class product fulfillment in conjunction with our high quality, national service delivery capability brings unique value to our clients. Of our top 100 clients, 90% turn to CompuCom for both product fulfillment and IT outsourcing or IT consulting services to support their industry standard computing environments," Coleman concluded.

"Our cash balance grew to almost $116 million by the end of the quarter," said M. Lazane Smith, CompuCom's senior vice president and chief financial officer. "In addition, the continued strength of our balance sheet is evidenced by the growth in working capital to $153 million, reflecting an increase for the tenth consecutive quarter."

Service revenue was $81.0 million, up 11.0% compared to the second quarter of 2003, when service revenue was $73.0 million. The growth in the service business was primarily related to strength in our core IT services, partially offset by a decrease in services provided to the federal government. As a percentage of total revenue, service revenue grew to 23.7% compared to 19.3% a year ago. Product revenue was $260.9 million, representing a decline of 14.4% when compared to the same period in 2003. Approximately half of the product revenue decline was attributable to lower software license sales resulting from the continued shift to sales of software licenses for which we receive a fee rather than record gross revenue.

Gross margin as a percentage of revenue was 12.3% compared to 11.5% in the second quarter of 2003. The increase in the total gross margin percentage was primarily a result of the continued growth of our service business relative to our product business. Product gross margin as a percentage of product revenue was 6.2% compared to 6.4% in the second quarter of 2003. Service gross margin as a percentage of service revenue was 32.1%, down slightly when compared to the same period in 2003 when service gross margin percentage was 33.0%. Service gross margin dollars as a percentage of total gross margin dollars grew to 61.6% compared to 55.3% in the second quarter of 2003.

Management from CompuCom Systems, Inc. will host a conference call on August 3rd at 8:30 a.m. EDT to discuss the results of the second quarter 2004. To access the conference call, please visit the Company's web site at www.compucom.com or dial 800/875-6883 and reference conference ID No. 9154874.

About CompuCom Systems, Inc.

CompuCom Systems, Inc. (Nasdaq:CMPC), headquartered in Dallas, Texas, is a national leader in helping companies plan, implement and manage multi-vendor, industry standard computing environments. CompuCom's clients include Fortune 1000 enterprises, vertical industry leaders, major technology equipment providers, leading edge systems integrators and wireless technology providers. CompuCom is accessible via the Internet at www.compucom.com.

This press release contains certain forward-looking statements based on the Company's beliefs and expectations as of the date of this release regarding revenues, gross margin, operating and financing expense, earnings, growth rates and certain business trends that involve risks and uncertainties that could cause actual results to differ materially from the results discussed herein. Specifically, the following trends may not continue: the ability to grow service revenue and gross margins; declines in product revenue and product gross margin may continue and may be greater than anticipated; the ability to continue to decrease costs; the ability to improve operational efficiency; the ability to grow service gross margin dollars and service gross margin dollars as a percentage of total gross margin dollars; the ability to continue to improve the balance sheet; the ability to win new clients; the expansion of the services the Company provides may not be as broad as the Company currently expects or widely accepted by clients; the manufacturers who use the Company's direct services may elect not to use those services. Other factors that could cause actual results to differ materially are: competitive pricing and supply; lower demand than anticipated for the products and services the Company sells; changes to manufacturers' and suppliers' pricing, price protection, rebate and incentive programs; short-term interest rate fluctuations; general economic conditions including uncertainty created by military action; employee turnover; potential impact of litigation; the ability to collect trade and vendor accounts receivable; and the effect of the proposed merger with an affiliate of Platinum Equity, LLC, as well as the risks and uncertainties set forth from time to time in CompuCom's Annual Report on Form 10-K and other public filings and disclosures. Readers should refer to those documents and should not place undue reliance on these forward-looking statements. The Company does not assume any obligation to update any forward-looking statements or other information contained in this press release.