<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
-------------
-----------
COMMISSION FILE NUMBER 0-21796
CDW COMPUTER CENTERS, INC.
(Exact name of registrant as specified in its charter)
ILLINOIS 36-3310735
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1020 E. LAKE COOK ROAD 60089
BUFFALO GROVE, ILLINOIS (Zip Code)
(Address of principal executive offices)
(847) 465-6000
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
---------------- ----------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
---------------- ----------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
AS OF MAY 14, 1997, 21,524,984 COMMON SHARES WERE OUTSTANDING.
<PAGE> 2
CDW COMPUTER CENTERS, INC.
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets - 1
March 31, 1997 and December 31, 1996
Condensed Consolidated Statements of Income - 2
Three Months Ended March 31, 1997 and 1996
Condensed Consolidated Statement of
Shareholders' Equity - Three Months Ended 3
March 31, 1997
Condensed Consolidated Statements of Cash Flows - 4
Three Months Ended March 31, 1997 and 1996
Notes to Condensed Consolidated Financial
Statements 5-7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Reports on Form 8-K 12
Signatures 13
ii
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CDW COMPUTER CENTERS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
ASSETS -------- ------------
<S> <C> <C>
Current assets :
Cash and cash equivalents $ 7,070 $ 16,462
Marketable securities 55,011 58,490
Accounts receivable, net of allowance for doubtful
accounts of $1,310 and $1,100, respectively 63,842 57,396
Miscellaneous receivables 3,039 3,931
Merchandise inventory 62,203 41,462
Prepaid expenses and other assets 1,121 823
Deferred income taxes 2,374 2,258
---------- ----------
Total current assets 194,660 180,822
Property and equipment, net 3,333 3,636
Construction-in-progress 11,644 8,659
Deferred income taxes and other assets 5,409 5,713
---------- ----------
Total assets $ 215,046 $ 198,830
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities :
Accounts payable $ 40,449 $ 36,642
Accrued expenses :
Payroll, commissions and management
incentive compensation 7,071 10,750
Exit costs 3,937 3,987
Income taxes 1,720 2,892
Other 2,893 2,937
---------- ----------
Total current liabilities 56,070 57,208
---------- ----------
Common shares, $ .01 par value; 75,000 shares
authorized; 21,525 shares issued and
outstanding 215 215
Paid-in capital 73,813 67,953
Retained earnings 86,776 75,417
Unearned compensation (1,828) (1,963)
---------- ----------
Total shareholders' equity 158,976 141,622
---------- ----------
Total liabilities and shareholders' equity $ 215,046 $ 198,830
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE> 4
CDW COMPUTER CENTERS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months
Ended March 31,
----------------------------
1997 1996
---------- ----------
Net sales $ 297,777 $ 206,705
Cost of sales 257,834 180,058
---------- ----------
Gross profit 39,943 26,647
Selling and administrative expenses 22,027 14,356
Exit charge - 4,000
---------- ----------
Income from operations 17,916 8,291
Interest income 957 835
Other income (expense), net (51) (54)
---------- ----------
Income before income taxes 18,822 9,072
Income tax provision 7,463 3,538
---------- ----------
Net income $ 11,359 $ 5,534
========== ==========
Net income per share $ 0.52 $ 0.26
========== ==========
Weighted average number of
common and common equivalent
shares outstanding 21,682 21,648
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements
2
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CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Retained Unearned Shareholders'
Shares Amount Paid-in Capital Earnings Compensation Equity
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 21,525 $ 215 $67,953 $ 75,417 $ (1,963) $ 141,622
MPK Restricted Stock Plan forfeitures (9) 3 (6)
Amortization of unearned compensation 132 132
Tax benefit from restricted stock and 5,835 5,835
stock option transactions
Capital contribution for legal costs assumed
by majority shareholder 34 34
Net income 11,359 11,359
----------------------------------------------------------------------------------
Balance at March 31, 1997 21,525 $ 215 $73,813 $ 86,776 $ (1,828) $ 158,976
==================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,359 $ 5,534
Adjustments to reconcile net income to net cash used in
operating activities:
Exit charge - 4,000
Depreciation and amortization 447 504
Legal fees assumed by majority shareholder 34 28
Tax benefit from restricted stock and stock option exercise 5,835 -
Deferred taxes 190 (327)
Changes in assets and liabilities:
Accounts receivable, net (6,446) (6,394)
Miscellaneous receivables 891 (341)
Merchandise inventory (20,741) (628)
Prepaid expenses and other assets (299) (339)
Accounts payable 3,807 (6,015)
Accrued expenses (4,945) 1,920
-------- --------
Net cash used in operating activities (9,868) (2,058)
-------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (4,575) (5,600)
Redemptions of available-for-sale securities 3,375 6,350
Purchases of held-to-maturity securities (14,358) (32,668)
Redemptions of held-to-maturity securities 19,241 20,622
Payments for purchase of property and equipment,
including construction-in-progress (3,207) (400)
-------- --------
Net cash provided by (used in) investing activities 476 (11,696)
-------- --------
Net decrease in cash (9,392) (13,754)
Cash and cash equivalents - beginning of period 16,462 14,216
-------- --------
Cash and cash equivalents - end of period $ 7,070 $ 462
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE> 7
CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
CDW Computer Centers, Inc. (the "Company") is engaged in the distribution
of personal computers and related products through direct marketing and retail
showrooms, primarily to end users within the United States. The Company
extends credit to business, governmental and institutional customers under
certain circumstances based upon the financial strength of the customer. Such
customers are typically granted net 10-day credit terms. The balance of the
Company's sales are made primarily through third party credit cards and for
cash on delivery.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles. Such principles were
applied on a basis consistent with those reflected in the 1996 Annual Report on
Form 10-K and documents incorporated therein as filed with the Securities and
Exchange Commission. The accompanying financial data should be read in
conjunction with the notes to consolidated financial statements contained in
the 1996 Annual Report on Form 10-K and documents incorporated therein. In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting solely of normal
recurring accruals) necessary to present fairly the financial position of the
Company as of March 31, 1997 and December 31, 1996, the results of operations
and cash flows for the three months ended March 31, 1997 and 1996, and the
changes in shareholders' equity for the three months ended March 31, 1997. The
unaudited condensed consolidated statements of income for such interim periods
are not necessarily indicative of results for the full year.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, such estimates and assumptions affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Net Income Per Share
Net income per common and common equivalent share for the three months
ended March 31, 1997 and 1996 are calculated using the weighted average number
of common and common equivalent shares outstanding during each period. Common
equivalent shares of 157,507 and 122,250 for the three months ended March 31,
1997 and 1996, respectively, relate to various incentive stock option plans and
are calculated using the treasury stock method.
On June 24, 1996, the Board of Directors of the Company announced a
three-for-two stock split effected in the form of a stock dividend paid on July
15, 1996 to all common shareholders of record as of July 5, 1996. All per
share and related amounts contained in these financial statements and notes
have been adjusted to reflect the stock split.
In accordance with Statement of Financial Accounting Standard No. 128,
"Earnings Per Share" (SFAS 128), the Company will implement the requirements of
SFAS 128 at the end of 1997. The Company has
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calculated earnings per share using both the basic and diluted methods, which
amounts will not differ materially from earnings per share as currently
reported.
3. Marketable Securities
The amortized cost and estimated fair values of the Company's investments in
marketable securities at March 31, 1997 were (in thousands):
<TABLE>
<CAPTION>
Gross
Unrealized
Holding
Estimated ------- Amortized
Fair Value Gains (Losses) Cost
------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Security Type
- -------------
Available for sale:
Redemptive tax exempt preferred stocks $ 4,177 $ - $ - $ 4,177
---------------------------------------------------------------
Held to maturity:
Bonds of states, municipalities, and political subdivisions 10,494 7 - 10,487
U.S. Government and U.S. Government Agency Securities 40,274 - (73) 40,347
---------------------------------------------------------------
Total held-to-maturity 50,768 7 (73) 50,834
---------------------------------------------------------------
Total marketable securities: $ 54,945 $ 7 $ (73) $ 55,011
===============================================================
</TABLE>
The Company's investments in securities held-to-maturity at March 31, 1997 were
all due in one year or less by contractual maturity. Estimated fair values of
marketable securities are based on quoted market prices.
4. Contingency
The Company and its majority shareholder are defendants in a lawsuit filed
by a former shareholder. The suit requests actual and punitive damages in an
amount that cannot be readily determined. The Company and its majority
shareholder believe the suit to be without merit and are vigorously defending
against this action. The majority shareholder has agreed to indemnify and
reimburse the Company for all damages and expenses, net of tax benefits
received by the Company, related to this action. For the three months ended
March 31,1997 and 1996, the Company and majority shareholder have incurred
legal expenses of approximately $53,000 and $46,000, respectively, which have
been assumed by the majority shareholder. Although the majority shareholder
has agreed to indemnify the Company for all expenses or settlements, if any, in
connection with this suit, the Company will continue to record such expenses or
settlements, if any, as an expense with an offsetting increase to paid-in
capital, net of tax effects.
5. Exit Charge
In June 1996 the Company purchased approximately 27 acres of vacant land
in Vernon Hills, Illinois, upon which it is constructing a combined
telemarketing, warehouse, showroom and corporate office facility. The Company
plans to vacate and endeavor to sublease its current facility, which resulted
in a $4.0 million pre-tax non-recurring charge to operating results for exit
costs in the first quarter of 1996. The exit costs consist primarily of the
estimated cost to the Company of subleasing the vacated facility, including
holding costs, the estimated costs of restoring the building to its original
condition and certain asset write-offs resulting from the relocation. There is
no assurance that the $4.0 million charge will be adequate to cover actual
costs should the Company's actual experience in subleasing the facility differ
from the assumptions used in calculating the exit charge.
Construction of the new facility began in September 1996. The Company
expects to relocate to the new facility in the third quarter of 1997. As of
March 31, 1997, approximately $11.6 million in costs, including $6.1 million
for land acquisition, have been incurred and are included in
construction-in-progress. The
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Company has entered into various construction and equipment contracts, relating
to the new facility, which aggregate $15.8 million, of which $5.5 million has
been incurred and is included in construction-in-progress as of March 31, 1997.
Pursuant to these contracts, the Company is committed for an additional $10.3
million as construction or installation is completed. The Company currently
estimates it will incur approximately $24.0 to $26.0 million in total capital
expenditures related to purchasing the land and constructing and equipping the
facility. Additionally, the Company will incur certain moving and other costs,
not expected to exceed $1.0 million, relating to the relocation which would be
charged to operating results in the period incurred.
6. Stock Option Exercise
The Company filed a Registration Statement on Form S-3, which was
effective on February 7, 1997, to modify the terms of the MPK Restricted
Stock Plan and provide participants the option to accelerate the vesting on
25% of their shares in exchange for the extension of the vesting period on
their remaining shares through 2003. Under the terms of this modification,
participants who elected the acceleration were granted options by the
Company equal to the number of shares which became vested with an exercise
price of $59.000 per share, the market price of the stock on the
acceleration date. Participants elected accelerated vesting under this
modification for 132,064 shares.
The Company filed a separate Registration Statement on Form S-3, which
was effective on February 21, 1997, pursuant to which certain Company
employees sold an aggregate of 632,064 shares of the Company's common
stock. The shares sold included 136,437 shares received upon exercise of
options under the MPK Stock Option Plan and 132,064 shares received by
participants of the MPK Restricted Stock Plan pursuant to the vesting
modification discussed above. The exercise and vesting of the shares
pursuant to the MPK Stock Option Plan and MPK Restricted Stock Plan will
result in the realization by the Company of a tax benefit of $6.2 million
in 1997, of which $334,000 was previously recorded in deferred taxes. The
incremental tax benefit of $5.8 million was recorded to paid-in capital.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
unaudited condensed consolidated financial statements and the notes thereto
included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth financial information derived from the
Company's statements of income expressed as a percentage of net sales, and
certain operating statistics. The financial information for the three
months ended March 31, 1997 and 1996 is presented on an actual basis and
pro forma to exclude the exit charge and related impact on the executive
incentive bonus pool, net of tax effects.
<TABLE>
<CAPTION>
FINANCIAL INFORMATION Percentage of Net Sales
Three Months Ended
March 31,
--------------------------------------------------------------
1997 1996
---- ----
Actual Pro-forma Actual Pro-forma
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 86.6 86.6 87.1 87.1
---- ---- ---- ----
Gross profit 13.4 13.4 12.9 12.9
Selling and administrative expenses 7.4 7.1 7.0 7.3
Exit charge 0.0 0.0 1.9 0.0
---- ---- ---- ----
Income from operations 6.0 6.3 4.0 5.6
Other income, net 0.3 0.3 0.4 0.4
---- ---- ---- ----
Income before income taxes 6.3 6.6 4.4 6.0
Income tax provision 2.5 2.6 1.7 2.4
---- ---- ---- ----
Net income 3.8 % 4.0 % 2.7 % 3.6 %
=== === === ===
<CAPTION>
OPERATING STATISTICS Three Months Ended
March 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Number of orders shipped (000's) 445 300
Average order size $ 669 $ 689
Customers serviced (000's) 200 147
Number of account executives, end of period 329 237
Catalogs distributed (000's) 19,983 12,907
National advertising pages placed 212 150
Inventory turnover 20 26
</TABLE>
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The following table presents net sales by product line as a percentage of
total net sales for each of the periods noted. Product mix is based upon
internal product code classifications and is retroactively adjusted for the
addition of new categories but not for changes in individual product
categorization.
PRODUCT MIX Three Months Ended
March 31,
-------------------
1997 1996
----- -----
Notebook & Laptops 24.2 % 25.9 %
Desktop Computers 13.2 11.9
Software 12.9 11.9
Printers 11.9 11.8
Data Storage Devices 10.5 8.3
Video 8.2 7.5
Add-On Boards/Memory 4.6 7.0
Communications 4.4 6.2
Network Products 4.4 4.1
Input Devices 3.0 2.9
Multi-Media 2.1 2.2
Other Accessories 0.6 0.3
----- -----
Total 100.0 % 100.0 %
===== =====
Three months ended March 31, 1997 compared with three months ended March
31, 1996
Net sales were $297.8 million for the three months ended March 31,
1997 compared with $206.7 million for the three months ended March 31,
1996, an increase of $91.1 million or 44.1%. The Company's first quarter
average order size decreased approximately 3% to $669 from $689 in the
first quarter of the previous year. The growth in net sales is primarily
attributable to higher sales volume resulting from the expansion of
marketing efforts, new product offerings, an increase in the number of
customers serviced and an increase in the number of account executives.
Several large manufacturers of notebook and desktop computers reduced
selling prices on many models, resulting in notebook and desktop computer
unit volume growth of 71% and 86%, respectively, from the first quarter of
1996. The increased availability of certain high end notebook computers
and the reduced pricing resulted in a shift within the notebook and laptop
product category to lower priced models. This combination served to lower
overall unit selling prices and increase order volume in the first quarter
of 1997 compared with the same quarter of 1996. Any reduction in the
quantities of notebook and desktop computers available to the Company from
the manufacturers producing these items could have an adverse effect on
future sales. Apple product sales composed less than 5% of net sales in
the period.
Gross profit increased $13.3 million, or 49.9%, as a result of the
increase in net sales and increased as a percentage of net sales to 13.4%
for the three months ended March 31, 1997, compared with 12.9% for the
three months ended March 31, 1996. The increase in gross profit as a
percentage of net sales is primarily due to the expansion of selling margin
on certain product lines resulting from vendor support programs,
opportunistic purchases and pricing strategies. Many of the vendor support
programs are dependent on achieving certain goals and objectives. Actual
gross profit achieved may vary on a quarterly basis due to changes in
vendor support programs, product mix, market conditions and other factors.
As a result, there is no certainty that the Company will be able to sustain
gross profit as a percentage of net sales at the levels achieved in recent
quarters.
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Selling and administrative expenses, excluding the impact of the exit
charge and its related impact on the executive incentive bonus pool,
decreased to 7.1% of net sales in the first quarter versus 7.3% in the
first quarter of 1996. This decrease is due primarily to a decrease in net
advertising expense as a percentage of net sales to 1.3% from 1.4% in the
three months ended March 31, 1997 and 1996, respectively. Gross
advertising expense increased to 3.51% of net sales for the three months
ended March 31, 1997 versus 3.45% for the three months ended March 31, 1996
due to expanded catalog circulation and national advertising pages combined
with new marketing initiatives. The increase in gross advertising spending
was offset by additional cooperative advertising reimbursements earned from
vendors which grew to 63% of gross advertising expense from 59% in the same
period of 1996. The increase in reimbursements was due to participation of
new vendors and incremental funding from existing vendors. The cooperative
advertising reimbursement rate may fluctuate as a percentage of gross
advertising spending in future quarters depending on the level of vendor
participation achieved and collection experience. The Company plans to
increase advertising expenditures in future quarters, which may result in
an increase in net advertising expense as a percentage of net sales and
lower operating margins than those achieved in recent quarters. The
statement concerning future advertising expense is a forward looking
statement that involves certain risks and uncertainties including the
ability to identify and implement cost effective incremental advertising
and marketing programs.
The executive incentive bonus pool, which pursuant to existing plans
is based upon a maximum 20% of the year over year increase in income from
operations, was $2.3 million and $242,000 for the three months ended March
31, 1997 and 1996, respectively, and is included within selling and
administrative expenses. Due to the $4.0 million exit charge recorded in
the first quarter of 1996, the executive incentive bonus pool was reduced
by $800,000 in 1996 and effectively increased by $800,000 in the first
quarter of 1997. Thus, the executive incentive bonus pool, on a pro forma
basis to exclude the impact of the exit charge in both periods, is $1.5
million and $1.0 million for the three months ended March 31, 1997 and
1996, respectively.
Selling and administrative expenses also include $53,000 and $46,000
in legal costs incurred by the majority shareholder for the three months
ended March 31, 1997 and 1996, respectively, in connection with the lawsuit
filed by a former shareholder. Although the majority shareholder has
agreed to indemnify the Company for all expenses or settlements, if any,
incurred in connection with this suit, the Company will continue to record
such expenses or settlements, if any, as an expense with an offsetting
increase to paid-in capital, net of tax effects.
Interest income totaled $957,000 for the three months ended March 31,
1997 compared with $835,000 for the three months ended March 31, 1996. The
level of interest income may decline in future periods as the Company
utilizes funds in connection with its facility expansion.
The effective income tax rate, expressed as a percentage of income
before income taxes, increased to 39.7% for the three months ended March
31, 1997 from 39.0% for the three months ended March 31, 1996. The
effective income tax rate for the first quarter is consistent with the
effective tax rate of 39.5% for the full year 1996.
Net income for the three months ended March 31, 1997 was $11.4
million, a 105.3% increase over $5.5 million for the three months ended
March 31, 1996. Net income per share of $0.52 for the three months ended
March 31, 1997 increased 100.0% from $0.26 in the same period of 1996. Pro
forma net income and net income per share, excluding the impact of the exit
charge and its related impact on the executive incentive bonus pool, were
$11.8 million and $0.55, representing an increase of 58.2% and 57.1%,
respectively, over the first quarter of 1996. All per share and related
amounts have been adjusted to reflect the three-for-two stock split
effected in the form of a stock dividend paid on July 15, 1996.
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<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
The Company has historically financed its operations and capital
expenditures primarily through cash flow from operations, short-term
borrowings and public offerings of common stock.
At March 31, 1997, the Company had cash, cash equivalents and
marketable securities of $62.1 million and working capital of $138.6
million, representing a decrease of $12.9 million in cash, cash equivalents
and marketable securities and an increase of $15.0 million in working
capital from December 31, 1996.
As of March 31, 1997 the Company had an aggregate $30.0 million
available pursuant to unsecured credit facilities with two financial
institutions expiring in June, 1997. Borrowings under the credit
facilities bear interest at the prime rate less 2 1/2%, LIBOR plus 1/2% or
the federal funds rate plus 1/2%, as determined by the Company. At March
31, 1997 there were no borrowings against either of the credit facilities.
The Company's current primary and anticipated use of cash is to fund
the growth in working capital and capital expenditures, including
facilities expansion. The Company believes that the funds held in cash,
cash equivalents and marketable securities, and funds available under the
credit facilities will be sufficient to fund the Company's working capital
and cash requirements at least through March 31, 1998.
Cash flows for the three months ended March 31, 1997
Net cash used in operating activities for the three months ended March
31, 1997 was $9.9 million. The primary factors which historically affect
the Company's cash flows from operations are accounts receivable,
merchandise inventory and accounts payable. The increase in accounts
receivable resulted from increased sales volume and an increase in the
percentage of net sales generated from open credit terms to its business
customers, offset by a decrease in days sales outstanding to 19.3 as of
March 31, 1997 from 20.1 as of December 31, 1996. Inventory turns
decreased to 20 annualized turns for the three months ended March 31, 1997
from 26 annualized turns for the three months ended March 31, 1996. The
Company made several large opportunistic purchases at the end of the first
quarter which resulted in higher than usual inventory levels and lower
corresponding inventory turns for the three months ended March 31, 1997.
The increase in accounts payable reflects timing of payments to vendors at
the end of the respective periods and increased purchase volume. Prepaid
expenses and other current assets increased $299,000 to approximately $1.1
million as of March 31, 1997 and are primarily composed of paper purchased
for future catalogs and prepaid insurance premiums.
Cash provided by operating activities for the first quarter of 1997
was positively impacted by a $5.8 million tax benefit relating to the
exercise and vesting of shares pursuant to the MPK Stock Option Plan and
the MPK Restricted Stock Plan in February 1997.
Net cash provided by investing activities for the three months ended
March 31, 1997 was $476,000, including approximately $3.2 million used for
capital expenditures. The capital expenditures made by the Company were
primarily related to progress payments for construction of the new
facility.
Facilities Expansion
In June, 1996, the Company purchased approximately 27 acres of vacant
land in Vernon Hills, Illinois for the purpose of constructing a combined
telemarketing, warehouse, showroom and corporate office facility. The
initial phase of construction is planned to include approximately 118,000
square feet of warehouse space and approximately 100,000 square feet of
office space, effectively more than a 100%
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<PAGE> 14
increase over the current facility. Construction of the new facility began
in September, 1996. As of March 31, 1997 approximately $11.6 million in
costs, including land acquisition, have been incurred and are included in
construction-in-progress. The Company has entered into various
construction and equipment contracts, relating to the new facility, which
aggregate $15.5 million, of which $5.5 million has been incurred and is
included in construction-in-progress as of March 31, 1997. Pursuant to
these contracts, the Company is committed for an additional $10.3 million
as construction or installation is completed. The Company estimates it
will incur approximately $24.0 to $26.0 million in total capital
expenditures related to purchasing the land and constructing and equipping
the facility. Additionally, the Company will incur certain moving and
other costs, not expected to exceed $1.0 million, relating to relocation
which would be charged to operating results in the period incurred.
If the Company is unable to generate increased sales and gross margins
sufficient to absorb increased overhead and other costs created by the new
facility, the Company would likely experience lower pre-tax profits.
PART II Other Information
ITEM 1. Legal Proceedings
As previously reported, the Company and Michael P. Krasny, the
Company's majority shareholder, were defendants in a lawsuit filed in the
United States District Court for the Northern District of Illinois, Eastern
Division, in which suit a former shareholder, executive officer and
director of the Company (the "Plaintiff") alleged violations of the federal
securities laws, fraud and breach of fiduciary duty in connection with the
Company's redemption of his stock in July 1990. (Reference is made to Item
3 the Company's 1996 Annual Report on Form 10-K for a detailed discussion
of the lawsuit.)
On June 14, 1996, the District Court granted the defendants' motion to
dismiss the Amended Complaint, with prejudice, on the grounds that the
federal cause of action was barred by the statute of limitations and the
District Court did not have jurisdiction over the pendant state law claims.
The Plaintiff has filed an appeal of the District Court decision to the
United States Court of Appeals for the Seventh Circuit. The Company and
Mr. Krasny believe that their actions were honest and proper and that the
suit by the former shareholder is without merit. The Company and Mr.
Krasny are committed to vigorously defending the litigation.
As previously reported, Mr. Krasny has agreed to indemnify the Company
for any and all costs, fees and expenses incurred in connection with this
litigation, including any expenses incurred in judgment or settlement of
the suit.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
There were no exhibits for the three months ended March 31, 1997.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months
ended March 31, 1997.
12
<PAGE> 15
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.
CDW Computer Centers, Inc.
--------------------------
(Registrant)
Date May 14, 1997 /s/ Harry J. Harczak, Jr.
------------------ -------------------------
Harry J. Harczak, Jr.
Chief Financial Officer
Date May 14, 1997 /s/ Daniel F. Callen
------------------ -------------------------
Daniel F. Callen
Chief Accounting Officer
13
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<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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0
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