<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 JUNE 30, 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.)
200 N. Milwaukee Ave. 60061
Vernon Hills, Illinois (Zip Code)
(Address of principal executive offices)
(847) 465-6000
(Registrant's telephone number, including area code)
1020 E. LAKE COOK RD. BUFFALO GROVE, IL 60089
---------------------------------------------
(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 AUGUST 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
June 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Income - 2
Three and Six Months Ended June 30, 1997 and 1996
Condensed Consolidated Statement of 3
Shareholders' Equity - Six Months Ended
June 30, 1997
Condensed Consolidated Statements of Cash Flows - 4
Six Months Ended June 30, 1997 and 1996
Notes to Condensed Consolidated Financial 5-7
Statements
ITEM 2. Management's Discussion and Analysis of 8-14
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security 16
Holders
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
ii
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
ASSETS
<S> <C> <C>
Current assets :
Cash and cash equivalents $ 11,354 $ 16,462
Marketable securities 69,001 58,490
Accounts receivable, net of allowance for doubtful
accounts of $1,500 and $1,100, respectively 65,917 57,396
Miscellaneous receivables 1,989 3,931
Merchandise inventory 47,012 41,462
Prepaid expenses and other assets 1,081 823
Deferred income taxes 2,374 2,258
--------- ---------
Total current assets 198,728 180,822
Property and equipment, net 3,082 3,636
Construction-in-progress 17,483 8,659
Deferred income taxes and other assets 5,411 5,713
--------- ---------
Total assets $ 224,704 $ 198,830
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities :
Accounts payable $ 28,228 $ 36,642
Accrued expenses :
Compensation 9,568 10,750
Income taxes 7,664 2,892
Exit costs 3,931 3,987
Other 3,511 2,937
--------- ---------
Total current liabilities 52,902 57,208
--------- ---------
Commitments and contingencies
Shareholders' equity :
Preferred shares, $1.00 par value; 5,000 shares
authorized; none issued - -
Common shares, $ .01 par value; 75,000 shares
authorized; 21,525 shares issued and
outstanding 215 215
Paid-in capital 73,794 67,953
Retained earnings 99,476 75,417
Unearned compensation (1,683) (1,963)
--------- ---------
Total shareholders' equity 171,802 141,622
--------- ---------
Total liabilities and shareholders' equity $ 224,704 $ 198,830
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
1
<PAGE> 4
CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, 1997 Ended June 30, 1997
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 304,545 $ 218,687 $ 602,322 $ 425,392
Cost of sales 262,888 189,071 520,722 369,129
--------- --------- --------- ---------
Gross profit 41,657 29,616 81,600 56,263
Selling and administrative expenses 21,586 16,555 43,613 30,911
Exit charge - - - 4,000
--------- --------- --------- ---------
Income from operations 20,071 13,061 37,987 21,352
Interest income 1,032 842 1,989 1,677
Other income (expense), net (60) (44) (111) (98)
--------- --------- --------- ---------
Income before income taxes 21,043 13,859 39,865 22,931
Income tax provision 8,343 5,365 15,806 8,903
--------- --------- --------- ---------
Net income $ 12,700 $ 8,494 $ 24,059 $ 14,028
========= ========= ========= =========
Net income per share $ 0.59 $ 0.39 $ 1.11 $ 0.65
========= ========= ========= =========
Weighted average number of
common and common equivalent
shares outstanding 21,673 21,810 21,677 21,729
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
2
<PAGE> 5
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 - - (45) - 23 (22)
Amortization of unearned compensation - - - - 257 257
Tax benefit from restricted stock and - - 5,835 - - 5,835
stock option transactions
Capital contribution for legal costs assumed - - 51 - - 51
by majority shareholder
Net income - - - 24,059 - 24,059
--------------------------------------------------------------------------------------
Balance at June 30, 1997 21,525 $ 215 $ 73,794 $ 99,476 $ (1,683) $ 171,802
======================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
3
<PAGE> 6
CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 24,059 $ 14,028
Adjustments to reconcile net income to net cash provided by
operating activities:
Tax benefit from restricted stock and stock option exercise 5,835 -
Depreciation and amortization 636 1,316
Deferred taxes 190 (373)
Legal fees assumed by majority shareholder 51 33
Loss on disposal of fixed asset - 281
Changes in assets and liabilities:
Accounts receivable, net (8,521) (11,560)
Miscellaneous receivables 1,942 (156)
Merchandise inventory (5,550) (10,493)
Prepaid expenses and other assets (262) (782)
Accounts payable (8,414) 6,452
Accrued expenses 4,164 2,272
Exit charge (56) 4,000
-------- --------
Net cash provided by operating activities 14,074 5,018
-------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (12,575) (10,600)
Redemptions of available-for-sale securities 7,575 16,100
Purchases of held-to-maturity securities (42,058) (51,154)
Redemptions of held-to-maturity securities 37,153 36,558
Payments for purchase of property and equipment,
including construction-in-progress (9,277) (7,082)
-------- --------
Net cash used in investing activities (19,182) (16,178)
-------- --------
Net decrease in cash (5,108) (11,160)
Cash and cash equivalents - beginning of period 16,462 14,216
-------- --------
Cash and cash equivalents - end of period $ 11,354 $ 3,056
======== ========
</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 30-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 June 30, 1997 and December 31, 1996, the results of operations for
the three and six months ended June 30, 1997 and 1996, the cash flows for the
six months ended June 30, 1997 and 1996, and the changes in shareholders' equity
for the six months ended June 30, 1997. The unaudited condensed consolidated
statements of income for such interim periods are not necessarily indicative of
results for the full year.
The Company is currently assessing the impact of the recently issued
Statements of Financial Accounting Standards numbers 130 and 131, "Reporting
Comprehensive Income" and "Disclosures about Segments of an Enterprise and
Related Information". The Company will implement the requirements of each of the
Statements at the end of 1997.
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.
Earnings Per Share
Net income per common and common equivalent share for the three and six
months ended June 30, 1997 and 1996 is calculated using the weighted average
number of common and common equivalent shares outstanding during each period.
Common equivalent shares of 148,000 and 152,000 for the three and six months
ended June 30, 1997, and 285,000 and 203,000 for the three and six months ended
June 30, 1996, respectively, relate to various incentive stock option plans and
are calculated using the treasury stock method.
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 calculated earnings per share using
both the basic and diluted methods, which amounts will not differ materially
from earnings per share as currently reported.
5
<PAGE> 8
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.
3. Marketable Securities
The amortized cost and estimated fair values of the Company's investments
in marketable securities at June 30, 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 $ 8,000 $ - $ - $ 8,000
----------------------------------------------------------------
Held to maturity:
U.S. Government and U.S. Government Agency Securities 53,961 - (45) 54,006
Bonds of states, municipalities, and political subdivisions 7,008 13 - 6,995
----------------------------------------------------------------
Total held-to-maturity 60,969 13 (45) 61,001
----------------------------------------------------------------
Total marketable securities $ 68,969 $ 13 $ (45) $ 69,001
================================================================
</TABLE>
The Company's investments in securities held-to-maturity at June 30, 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 and six months ended June
30, 1997, the Company and majority shareholder have incurred legal expenses of
approximately $30,000 and $83,000, 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 constructed a combined telemarketing,
warehouse, showroom and corporate office facility. Construction of the Vernon
Hills facility was completed in July 1997, at which time the Company relocated
to the new facility and vacated the Buffalo Grove facility. The Company recorded
a $4.0 million pre-tax non-recurring charge to operating results for exit costs
relating to the Buffalo Grove facility 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. As a result of the move, the Company incurred moving costs of $200,000
which were charged to operating results in the second quarter of 1997. No
further moving costs are expected to be incurred.
6
<PAGE> 9
As of June 30, 1997 approximately $17.5 million in construction costs,
including $6.1 million for 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 $16.8
million, of which $11.4 million has been incurred and is included in
construction-in-progress as of June 30, 1997. Pursuant to these contracts, the
Company is committed for an additional $5.4 million. The Company currently
estimates it will incur approximately $23.0 to $24.0 million in total capital
expenditures related to purchasing the land and constructing and equipping the
facility.
6. Financing Arrangements
The Company has an aggregate $30 million available pursuant to unsecured
lines of credit with two financial institutions expiring in June, 1998.
Borrowings under one of 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. Borrowings under the second credit facility bear interest at the
prime rate less 2 1/2%, LIBOR plus .45% or the federal funds rate plus .45%, as
determined by the Company. At June 30, 1997 there were no borrowings against
either of the credit facilities.
In September, 1996 the Company established a stand-by letter of credit for
approximately $1.7 million related to construction of the new facility. The
Company has pledged a U.S. Treasury Note, included in investments
held-to-maturity, with a face value of $2.0 million as collateral for the letter
of credit.
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 six months ended
June 30, 1997 and 1996 is presented on a pro forma basis 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 June 30, Six Months Ended June 30,
--------------------------- --------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(Pro Forma)
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 86.3 86.5 86.5 86.8
---- ---- ---- ----
Gross profit 13.7 13.5 13.5 13.2
Selling and administrative expenses 7.1 7.6 7.1 7.5
--- --- --- ---
Income from operations 6.6 5.9 6.4 5.7
Other income, net 0.3 0.4 0.3 0.4
--- --- --- ---
Income before income taxes 6.9 6.3 6.7 6.1
Income tax provision 2.7 2.4 2.6 2.3
--- --- --- ---
Net income 4.2 % 3.9 % 4.1 % 3.8 %
=== === === ===
<CAPTION>
Operating Statistics Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of orders shipped (000's) 425 302 870 602
Average order size $ 717 $ 725 $ 692 $ 707
Customers serviced (000's) 182 146 328 254
Number of account managers, end of period 319 256 319 256
Catalogs distributed (000's) 19,172 12,904 39,156 25,812
National advertising pages placed 185 159 397 309
Inventory turns 19 23 24 23
</TABLE>
8
<PAGE> 11
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 Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Notebooks & Laptops 26.9 % 26.6 % 25.6 % 26.3 %
Software 12.6 12.3 12.8 12.1
Desktop Computers 12.4 11.6 12.8 11.7
Printers 11.4 11.1 11.6 11.5
Data Storage Devices 10.4 9.2 10.4 8.8
Video 7.5 7.4 7.8 7.5
Add-On Boards/Memory 4.8 6.2 4.7 6.6
Communications 4.1 5.6 4.3 5.9
Network Products 4.5 4.3 4.4 4.2
Input Devices 2.9 3.3 3.0 3.1
Multi-Media 1.9 2.1 2.0 2.1
Other Accessories 0.6 0.3 0.6 0.2
----- ----- ----- -----
Total 100.0 % 100.0 % 100.0 % 100.0 %
===== ===== ===== =====
Three months ended June 30, 1997 compared with three months ended June 30, 1996
Net sales were $304.5 million for the three months ended June 30, 1997
compared with $218.7 million for the three months ended June 30, 1996, an
increase of $85.8 million or 39.2%. Average order size decreased approximately
1% to $717 from $725 in the second quarter of 1996. The growth in net sales is
primarily attributable to higher order 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 managers.
Selling prices on many models of notebook and desktop computers decreased
from previous periods, resulting in notebook and desktop computer unit volume
growth of 82% and 66%, respectively, from the second quarter of 1996. Lower
manufacturer pricing levels and expanded product features in notebook computers
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 second 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.
Gross profit increased as a percentage of net sales to 13.7% for the three
months ended June 30, 1997, compared with 13.5% for the three months ended June
30, 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.
Selling and administrative expenses decreased to 7.1% of net sales in the
second quarter versus 7.6% in the second quarter of 1996. For the second quarter
of 1997, an increase in net advertising expense due to incremental marketing
activities and $200,000 of moving costs were offset by decreases in various
components of selling and administrative expenses. The reduction of various
9
<PAGE> 12
components of selling and administrative expenses resulted from improved
productivity and leveraging of fixed costs over a larger sales base.
Additionally, selling and administrative expense in the second quarter of 1996
included a $281,000 charge related to the trade-in of an internal computer
system. As a result of the move to the new facility in July 1997, selling and
administrative expenses may rise as a percentage of sales due to the increase in
occupancy costs and the inefficiencies inherent in the start-up of a new
warehouse.
Net advertising expense increased as a percentage of net sales to 1.3% from
1.1% in the three months ended June 30, 1997 and 1996, respectively. Gross
advertising expense increased to 3.5% of net sales for the three months ended
June 30, 1997 versus 3.1% for the three months ended June 30, 1996 due to
expanded catalog circulation and national advertising pages combined with new
marketing initiatives. Cooperative advertising reimbursements earned from
vendors decreased to 61% of gross advertising expense for the second quarter of
1997 from 65% in the same period of 1996. The decrease in the reimbursement rate
was due in part to the initiation of certain marketing activities that are not
covered by cooperative reimbursement. 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 $1.4 million for the three months ended June 30, 1997 and 1996,
and is included within selling and administrative expenses.
Selling and administrative expenses also include $30,000 and $8,000 in
legal costs incurred by the majority shareholder for the three months ended June
30, 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 $1.0 million for the three months ended June 30,
1997 compared with $842,000 for the three months ended June 30, 1996. The
increase is due to higher interest rates combined with higher levels of cash
available for investment resulting from cash generated from operations,
including the tax benefit from stock option and restricted stock transactions in
the first quarter of 1997, offset by funds utilized for construction of the
Vernon Hills facility.
The effective income tax rate, expressed as a percentage of income before
income taxes, increased to 39.6% for the three months ended June 30, 1997 from
38.7% for the three months ended June 30, 1996. The effective income tax rate
for the second quarter of 1997 is consistent with the effective tax rate of
39.5% for the full year 1996.
Net income for the three months ended June 30, 1997 was $12.7 million, a
49.4% increase over $8.5 million for the three months ended June 30, 1996. Net
income per share of $0.59 for the three months ended June 30, 1997 increased
51.3% from $0.39 in the same period 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.
Six months ended June 30, 1997 compared with the six months ended June 30, 1996
Net sales were $602.3 million for the six months ended June 30, 1997
compared with $425.4 million for the six months ended June 30, 1996, an increase
of $176.9 million or 41.6%. Average order size for the first six months
decreased approximately 2% to $692 from $707 for the corresponding period of the
previous year. The growth in net sales is primarily attributable to higher sales
10
<PAGE> 13
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 manager.
Selling prices on many models of notebook and desktop computers decreased
from previous periods, resulting in notebook and desktop computer unit volume
growth of 77% and 76%, respectively, from the first six months of 1996. Lower
manufacturer pricing levels and expanded product features in 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 six months ended
June 30, 1997 compared with the six months ended June 30, 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.
Gross profit increased as a percentage of net sales to 13.5% for the six
months ended June 30, 1997, compared with 13.2% for the six months ended June
30, 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.
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 for the six months ended June 30, 1997 from 7.5% for the
six months ended June 30, 1996. The decrease is mainly the result of decreases
in various components of selling and administrative expenses through improved
productivity and leveraging of fixed costs over a larger sales base in the six
months ended June 30, 1997. As a result of the move to the new facility, selling
and administrative expenses may rise as a percentage of sales due to the
increase in occupancy costs and the inefficiencies inherent in the start-up of a
new warehouse.
Net advertising expense as a percentage of net sales remained consistent
with the prior year at 1.3% of net sales in the six months ended June 30, 1997
and 1996. Gross advertising expense increased to 3.5% of net sales for the six
months ended June 30, 1997 versus 3.3% for the six months ended June 30, 1996
due to expanded catalog circulation and national advertising pages combined with
new marketing initiatives. The increase in gross advertising expense was offset
by a corresponding increase in cooperative advertising reimbursements earned
from vendors to 62.0% of gross advertising expenditures in the first six months
of 1997 from 61.6% in the same period of 1996. 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.
Construction of the Vernon Hills facility was completed in July 1997, at
which time the Company relocated to the new facility and vacated the Buffalo
Grove facility. The Company recorded a $4.0 million pre-tax non-recurring charge
to operating results for exit costs relating to the Buffalo Grove facility 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.
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 $3.7 million and $1.7 million for the six months ended June 30,
1997 and 1996, respectively, and is included within selling and administrative
expenses. The impact of the $4.0 million exit charge was to reduce the executive
11
<PAGE> 14
incentive bonus pool by $800,000 in the first quarter of 1996 and effectively
increase it 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 $2.9 million and $2.5 million for the six months
ended June 30, 1997 and 1996, respectively.
Selling and administrative expenses also include $83,000 and $54,000 in
legal costs incurred by the majority shareholder for the six months ended June
30, 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 $2.0 million for the six months ended June 30, 1997
compared with $1.7 million for the six months ended June 30, 1996. The increase
is due to higher interest rates combined with higher levels of cash available
for investment resulting from cash generated from operations, including the tax
benefit from stock option and restricted stock transactions in the first quarter
of 1997, offset by funds utilized for construction of the Vernon Hills facility.
The effective income tax rate, expressed as a percentage of income before
income taxes, increased to 39.6% for the six months ended June 30, 1997 from
38.8% for the six months ended June 30, 1996. The effective income tax rate for
the first six months is consistent with the effective tax rate of 39.5% for the
full year 1996.
Net income for the six months ended June 30, 1997 was $24.1 million, a
72.1% increase over $14.0 million for the six months ended June 30, 1996. Net
income per share of $1.11 for the six months ended June 30, 1997 increased 70.8%
from $0.65 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 $24.5 million and $1.13, representing an
increase of 53.6% and 52.7%, respectively, over the first six months 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.
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 June 30, 1997, the Company had cash, cash equivalents and marketable
securities of $80.4 million and working capital of $145.8 million, representing
an increase of $5.1 million in cash, cash equivalents and marketable securities
and an increase of $22.2 million in working capital from December 31, 1996.
As of June 30, 1997 the Company had an aggregate $30.0 million available
pursuant to unsecured credit facilities with two financial institutions expiring
in June, 1998. Borrowings under one of 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. Borrowings under the second credit facility bear
interest at the prime rate less 2 1/2%, LIBOR plus .45% or the federal funds
rate plus .45%, as determined by the Company. At June 30, 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 June 30, 1998.
12
<PAGE> 15
Cash flows for the six months ended June 30, 1997
Net cash provided by operating activities for the six months ended June 30,
1997 was $14.1 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 business customers, offset by a decrease in
days sales outstanding to 19.8 as of June 30, 1997 from 20.1 as of December 31,
1996. The Company changed its credit terms during June 1997 to net 30 days from
net 10 days, which may result in a future increase in days sales outstanding.
Inventory turns increased to 24 annualized turns for the six months ended June
30, 1997 from 23 annualized turns for the six months ended June 30, 1996. The
decrease in accounts payable reflects timing of payments to vendors at the end
of the respective periods. Prepaid expenses and other current assets increased
$262,000 to approximately $1.1 million as of June 30, 1997 and are primarily
composed of paper purchased for future catalogs and prepaid insurance premiums.
Cash provided by operating activities for the first six months of 1997 was
positively impacted by a $5.8 million tax benefit recorded to paid-in capital,
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 used in investing activities for the six months ended June 30,
1997 was $19.2, including approximately $9.3 million used for capital
expenditures. The capital expenditures made by the Company were primarily
related to progress payments for construction and equipment related to the new
facility.
The Company ships a substantial quantity of its products to customers via
the United Parcel Service ("UPS"). As a result of the strike by UPS workers on
August 4, 1997, the Company is no longer able to use UPS for shipments to its
customers. In an attempt to service its customers, the Company has increased
shipping capacity with its other existing carriers and is also using alternative
carriers. However, due to carrier capacity constraints, the Company is not able
to ship all orders on a same day basis as was its prior practice. Additionally,
the Company is absorbing all incremental shipping costs incurred through the use
of these alternative carriers. As a result of the carrier capacity constraints
and absorbed incremental shipping costs, the Company's sales and operating
results may be negatively impacted. The magnitude of the impact is dependent
upon the duration and ultimate resolution of the UPS strike, as well as the
Company's ability to continue to find and utilize alternative shipping carriers.
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 includes approximately 100,000 square feet of warehouse
space and approximately 100,000 square feet of office space, approximately a
100% increase over the former facility in Buffalo Grove. Construction of the
Vernon Hills facility was completed in July 1997, at which time the Company
relocated to the new facility and vacated the Buffalo Grove facility.
As of June 30, 1997 approximately $17.5 million in construction costs,
including $6.1 million for 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 $16.8
million, of which $11.4 million has been incurred and is included in
construction-in-progress as of June 30, 1997. Pursuant to these contracts, the
Company is committed for an additional $5.4 million as construction or
installation is completed. The Company estimates it will incur approximately
$23.0 to $24.0 million in total capital expenditures related to purchasing the
land and constructing and equipping the facility.
13
<PAGE> 16
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.
14
<PAGE> 17
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 of 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 defendant's 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 filed
an appeal of the District Court decision to the United States Court of Appeals
for the Seventh Circuit. On May 14, 1997, the Court of Appeals heard oral
argument on Plaintiff's appeal. On July 28, 1997, the Court of Appeals reversed
the District Court's ruling and remanded the matter back to the District Court
for further proceedings. The Court of Appeals held, among other things, that the
District Court improperly granted the motion to dismiss the Amended Complaint
because it based its decision on inferences of fact inappropriate at this stage
of the proceedings.
On June 10, 1997, the Plaintiff filed in the Circuit Court of the
Nineteenth Judicial Circuit, Lake County, Illinois, a lawsuit alleging
essentially the same fraud and breach of fiduciary duty claims asserted in his
dismissed federal lawsuit. The Company and Mr. Krasny have answered the
Complaint and moved to strike a portion of the relief requested by the
Plaintiff. In their answer to the Complaint, the Company and Mr. Krasny deny any
wrongdoing or liability. The Company anticipates this action will likely be
dismissed or stayed in light of the subsequent ruling by the Court of Appeals
discussed above.
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.
15
<PAGE> 18
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held an annual meeting of Shareholders on May 7, 1997.
(b) The names of all Directors of the Company are set forth in (c)
below.
(c) Three matters were voted upon and approved by the
Shareholders. The presentation below briefly describes the
matter voted upon and results of Shareholders' votes.
1. Election of Directors
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C> <C>
By Nominee
----------
- Michael P. Krasny 20,215,583 41,639 -
- Gregory C. Zeman 20,215,583 41,639 -
- Daniel B. Kass 20,215,583 41,639 -
- Joseph Levy, Jr. 20,215,583 41,639 -
- Michelle L. Collins 20,215,583 41,639 -
</TABLE>
2. Approval of Employee Incentive Bonus Pool
The establishment of a performance-based bonus pool to be paid to
qualifying officers of the Company for the year ended December 31,
1997.
Votes For Votes Against Abstentions Unvoted
--------- ------------- ----------- -------
19,831,114 208,718 16,243 201,147
3. Ratification of Auditors
The selection of Coopers & Lybrand, LLP, independent public
accountants, as auditors of the Company for the year ended
December 31, 1997.
Votes For Votes Against Abstentions
--------- ------------- -----------
20,244,068 4,912 8,242
16
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
10 (mm) Revolving Note between the Company and LaSalle
National Bank dated June 29, 1997.
10 (nn) Revolving Note between the Company and
The Northern Trust Company dated June 30, 1997.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the six months ended
June 30, 1997.
17
<PAGE> 20
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 August 14, 1997 /s/ Harry J. Harczak, Jr.
----------------- ----------------------------
Harry J. Harczak, Jr.
Chief Financial Officer
Date August 14, 1997 /s/ Daniel F. Callen
----------------- -----------------------------
Daniel F. Callen
Chief Accounting Officer
18
<PAGE> 21
INDEX TO EXHIBITS
10 (mm) Revolving Note between the Company and LaSalle National Bank dated June
29, 1997.
10 (nn) Revolving Note between the Company and The Northern Trust Company
dated June 30, 1997.
19
<PAGE> 1
EXHIBIT 10 (mm)
REVOLVING NOTE BETWEEN THE COMPANY
AND LASALLE NATIONAL BANK
DATED JUNE 29, 1997
<PAGE> 2
REPLACEMENT REVOLVING NOTE
$15,000,000 Dated as of June 29, 1997
Due: June 28, 1998
On or before June 28, 1998, CDW COMPUTER CENTERS, INC. (The
"Undersigned"), for value received, promise to pay to the order of LASALLE
NATIONAL BANK, a national banking association (hereinafter, together with any
holder thereof, called "Bank"), whose address is 135 S. LaSalle Street, Chicago,
Illinois 60603, the principle sum of Fifteen Million and 00/100 Dollars
($15,000,000) or if less, the aggregate unpaid principle amount of all loans
made by the Bank to the Undersigned hereunder (this "Note"). The unpaid
principle amount hereof shall bear interest at the Undersigned's option of the
following:
(i) a fixed rate equal to the greater of (A) the "Prime Rate"
(hereinafter defined) minus two and one-half of one percent (-2
1/2%) per annum, or (B) the "Federal Funds Rate" (hereinafter
defined) plus one-half of one percent (+1/2%) per annum, for
borrowing not to exceed thirty (30) days, such rate to be fixed at
the beginning of the term of such borrowing (the "Fixed Prime
Rate'); or
(ii) a floating rate equal to the greater of (A) the Prime Rate minus
two and one-half percent (-2 1/2%) per annum, for borrowing in
excess of thirty (30) days (the "Floating Prime Rate"); the
Floating Prime Rate and the Fixed Prime Rate are referred to
herein collectively as the "Prime Rate"); or
(iii) "Adjusted LIBOR" (hereinafter defined).
1. For purposes hereof the following terms shall have the following
definitions:
"Prime Rate" shall mean the rate in effect from time to time as set by
the Bank and called its Prime Rate. The effective date of any change in said
Prime Rate shall for purposes hereof be the date the rate is changed by the
Bank. The Bank shall not be obligated to give notice of any change in the Prime
Rate.
"Federal Funds Rate" shall mean, for any day, the daily effective
Federal Funds rate for such day as published in the Federal Reserve Statistical
Release H.15 ("H.15") (or, if such Release is not published, the successor
thereto or closest approximation thereto, as determined by the Bank) for such
day; provided that, the Federal Funds Rate for any day on which the Federal
Reserve Bank of New York, (the "New York Fed") is not open for business shall be
the Federal Funds Rate for the next preceding day on which the New York Fed was
open for business; and provided, further, that if the Bank determines, in good
faith, that it is unable to determine the Federal Funds Rate on the basis of
H.15, then the Bank shall determine the Federal Funds Rate based on the
quotation of three (3) dealers in Federal Funds in New York City, as reasonably
selected by the Bank, and the Bank's determination of such rate shall be binding
and conclusive absent manifest error.
"Adjusted LIBOR" means a rate of interest equal to one-half of one
percent (1/2%) per annum in excess of the per annum rate of interest at which
U.S. dollar deposits in an amount comparable to the amount of the relevant
"LIBOR Loan" (hereinafter defined) and for a period equal to the relevant
"Interest Period" (hereinafter defined) are offered generally to the Bank
(rounded upward, if necessary, to the nearest 1/16 of 1.00%) in the London
Interbank Eurodollar market at 11:00 a.m. (London time) two (2) banking days
prior to the commencement of each Interest Period, such rate to remain fixed for
such Interest Period.
"Interest Period" shall mean successive one, two or three-month periods
as selected from time to time by the Undersigned by notice given to the Bank not
less than three (3) business days prior to the first day of each respective
Interest Period; provided that: (i) each such one, two, three-month period
occurring after such initial period shall commence on the day on which the next
preceding period expires; (ii) the final Interest Period shall be such that its
expiration occurs on or before the stated maturity date of the Note; and (iii)
if for any reason the Undersigned shall fail to select timely a period, then
shall be deemed to have selected a LIBOR Loan with a one (1) month Interest
Period; provided that, at any time any Interest Period expires less than one (1)
month before the maturity date of the Note, then, for the period commencing on
such expiration date and ending on the maturity date such LIBOR Loan shall
convert to a loan bearing interest at the Floating Prime Rate.
1
<PAGE> 3
2. Interest on that portion of the outstanding principle amount
hereof bearing interest at the Prime Rate shall be payable from
the date hereof on such aggregate unpaid principle amount on the
last day of each month, commencing on July 31, 1997, and at
maturity hereof. Interest on LIBOR borrowing shall be payable at
the end of each respective Interest Period. Interest after
maturity (whether by reason of acceleration or otherwise) shall be
paid on the unpaid balance at the rate of the Floating Prime Rate
plus two percent (2%) per annum (the "Default Rate"). Interest
shall be computed on the basis of a year consisting of 360 days
and shall be paid for the actual number of days elapsed, unless
otherwise specified herein.
3. Each LIBOR borrowing hereunder (each, a "LIBOR Loan") must equal
$100,000 or an integral multiple thereof. Interest on each LIBOR
Loan shall be payable on the last banking day of each Interest
Period with respect thereto, commencing on the first such date to
occur after the date hereof, at maturity, after maturity on
demand, and on the date of any payment hereon on the amount paid.
The Undersigned hereby further promises to pay to the order of the
Bank, on demand, interest on the unpaid principle amount hereof
after maturity (whether by acceleration or otherwise) at the
Default Rate.
4. Provisions applicable to LIBOR Loans:(a) The Bank's determination
of Adjusted LIBOR as provided above shall be conclusive, absent
manifest error. Furthermore, if the Bank determines, in good
faith (which determination shall be conclusive, absent manifest
error), prior to the commencement of any Interest Period that (a)
U.S. dollar deposit of sufficient amount and maturity for funding
any LIBOR Loans are not available to the Bank in the London
Interbank Eurodollar market in the ordinary course of business, or
(b) by reason of circumstances affecting the London Interbank
Eurodollar market, adequate and fair means do not exist for
ascertaining the rate of interest to be applicable to the relevant
LIBOR Loan, the Bank shall promptly notify the Undersigned and
such LIBOR shall automatically convert on the day of its
then-current Interest Period to a loan bearing interest at the
Floating Prime Rate.
(b) If, after the date hereof, the introduction of, or any change in
any applicable law, treaty, rule, regulation or guideline or in
the interpretation or administration thereof by any government
authority or any central bank or other fiscal, monetary or other
authority having jurisdiction over the Bank or its lending offices
(a "Regulatory Change"), shall, in the opinion of counsel to the
Bank, makes it unlawful for the Bank to make or maintain any LIBOR
Loan evidenced hereby, then the Bank shall promptly notify the
Undersigned and such LIBOR Loan shall automatically convert on the
last day of its then-current Interest Period to a loan bearing
interest at the Floating Prime Rate.
(c) If, for any reason, any LIBOR Loan is paid prior to the last
business day of its then-current Interest Period, the Undersigned
agrees to indemnify the Bank against any loss (including any loss
on redeployment of the funds repaid), cost or expense incurred by
the Bank as a result of such prepayment.
(d) If any Regulatory Change (whether or not having the force of law)
shall (a) impose, modify or deem applicable any assessment,
reserve, special deposit or similar requirement against assets
held by, or deposited in or for the account of or loans by, or any
other acquisition of funds or disbursements by, the Bank: (b)
subject the Bank or any LIBOR Loan to any tax, duty, charge, stamp
tax, or fee or change the basis of taxation of payment to the Bank
principle or interest due from the Undersigned to the Bank
hereunder (other than a change in taxation of the overall net
income of the Bank); or (c) impose on the Bank any other
conditions regarding such LIBOR Loan or the Bank's funding
thereof, and the Bank shall determine (which determination shall
be conclusive, absent manifest error) that the result of the
forgoing is to increase the cost to the Bank of making or
maintaining such LIBOR Loan or to reduce the amount of principle
or interest received by the Bank hereunder, then the Undersigned
2
<PAGE> 4
shall pay to the Bank, on demand and presentation of satisfactory
documentation therefor, such additional amounts as the Bank shall,
from time to time, determine are sufficient to compensate and
indemnify the Bank for such increased cost or reduced amount.
5. The Undersigned hereby authorizes the Bank to charge any account
of the Undersigned for all sums due hereunder. Principle payments
submitted in funds not available until collected shall continue to
bear interest until collected. If payment hereunder becomes due
and payable on a Saturday, Sunday or legal holiday under the law
of the United States or the State of Illinois, the due date
thereof shall be extended to the next succeeding business day, and
interest shall be payable thereon at the rate specified during
such extension.
6. The Note evidences a revolving line of credit under which the
Undersigned is indebted to the Bank and evidences the aggregate
unpaid principle amount of all advances made or to be made by the
Bank to the Undersigned under the Note. All advances and
repayments hereunder shall be evidenced by entries on the books
and records of the Bank which shall be presumptive evidence of the
principle amount and interest owing and unpaid on this Note, or
any renewal or extension hereof. The failure to so record any
such amount or any error so recording any such amount shall not,
however, limit or otherwise affect the obligations of the
Undersigned hereunder or under any not to repay the principle
amount of the liabilities together with all interest accruing
thereon. This Note may be used for direct advances or letter of
credit. Each letter of credit requested by the Undersigned shall
be subject to the terms and conditions of the Bank's standard
letter of credit application, which application is incorporated
herein by this reference. The amount available to the
Undersigned under this Note shall be reduced by the face amount of
all letters of credit issued and outstanding hereunder. All
letters of credit issued hereunder shall have an expiry date no
later than the maturity date of this Note. The Undersigned and
the Bank agree that each draw under any letter of credit shall
constitute, and shall be repaid by, a direct advance under this
Note on the date of such draw. Each letter of credit requested by
the Undersigned hereunder shall be issued by the Bank only after
the Bank has received a fully executed letter of credit
application on the Bank's standard form and the Bank's customary
fee for issuance of letters of credit.
7. Advances under this Note may be made by the Bank upon the written
request of any two (2) authorized officers of the Undersigned
whose authority to so act has not been revoked by the Undersigned
in writing theretofore received by the Bank at its main office.
Any such advances shall be conclusively presumed to have been made
by the Bank to or for the benefit of the Undersigned. The
Undersigned does hereby irrevocably confirm, ratify and approve
all such advances by the Bank and does hereby indemnify the Bank
against loss and reasonable expense (including court costs,
attorneys' and paralegals' fees) and shall hold the Bank harmless
with respect thereto.
8. The Undersigned shall be in default hereunder if: (a) any amount
payable on this and any and all other liabilities or obligations
of the Undersigned to the Bank, howsoever created, arising or
evidenced, whether now existing or hereafter arising, whether now
due or to become due, whether direct, indirect, absolute,
contingent, joint, several, or joint and several (all such
liabilities and obligations, including this Note, are hereinafter
referred to as the "Obligations") or on the obligations of any
obligor hereunder, it not paid within five (5) days or when due;
or (b) the Undersigned shall otherwise fail to perform any of the
promises to be performed by the Undersigned hereunder or under any
other security agreement or other agreement with the Bank and the
3
<PAGE> 5
same is not cured within thirty (30) days of notice thereof by the
Bank; or (c) the Undersigned, or any other party liable with
respect to the Obligations, or any guarantor or accommodation
endorser or third party pledgor, shall make any assignment for the
benefit of creditors, or there shall be commenced any bankruptcy,
receivership, insolvency, reorganization, dissolution or
liquidation proceedings by or against, or the entry of any
judgment, levy, garnishment, or other process (except for any
judgment, levy, attachment, garnishment or other process entered
pursuant to certain litigation instituted by John Marks, as
described in the Undersigned's 1997 proxy statement, as amended
from time to time), or the filing of any lien against the
Undersigned or any guarantor, or any other party liable with
respect to the Obligations, or accommodations endorser or third
party pledgor for any of the Obligations which has a material
adverse effect on such party; or (d) the determination by the Bank
that a material adverse change has occurred in the financial
condition of the Undersigned from the condition set forth in the
most recent financial statements of the Undersigned furnished to
the Bank, or from the financial condition of the Undersigned most
recently disclosed to the Bank in any matter and the same is not
cured within thirty (30) days of notice thereof by the Bank; or
(e) any oral or written warranty, representation, certificate or
statement of the Undersigned to the Bank is untrue in any material
respect; or (f) failure of the Undersigned, within thirty (30)
days after a request by the Bank, to furnish financial information
or to permit inspection by the Bank of the Undersigned's books and
records; or (g) the occurrence of any material adverse event which
causes a change in the financial condition of the Undersigned, or
which would have a material adverse effect on the business of the
Undersigned and the same is not cured within thirty (30) days
notice thereof by the Bank; provided, that any event relation to
the John Marks litigation as set forth in subsection (3) above
shall not be deemed to violate this subsection (g); or (h) the
Undersigned fails to have, at the end of each of its fiscal
quarters (1) a Tangible Net Worth of at least $35,000,000 or (2) a
ratio of Liabilities to Tangible Net Worth of no greater than
2.0:1.0 and a default of either (1) or (2) shall not be cured by
the Undersigned within thirty (30) days.
9. For purpose hereof, "Tangible Net Worth" shall mean the sum of
shareholders' equity plus debt subordinated to the Undersigned
liabilities to the Bank, minus intangibles, including, but not
limited to, goodwill, customer lists, prepaid items, deferred
charges, debts owed by officers and other affiliates and such
"Other Assets" as set forth on the financial statements of the
Undersigned, "Liabilities" shall mean all liabilities of the
Undersigned that would be shown on a balance sheet of the
Undersigned prepared in accordance with generally accepted
accounting principles consistently applied.
10. Whenever the Undersigned shall be in default as aforesaid, without
demand or notice of any kind except as set forth herein, the
entire unpaid amount of all Obligations shall become immediately
due and payable, and the Bank may exercise, from time to time, any
and all rights and remedies available to it under the Uniform
Commercial Code of Illinois, or otherwise, including those
available under any written instrument (in addition to this Note)
relating to any of the Obligations and may, without demand or
notice of any kind, appropriate and apply toward the payment of
such of the Obligations, whether matured or unmatured including
reasonable costs of collections and reasonable attorneys' and
paralegals' fees, and in such order of application as the Bank
may, from time to time, elect, balance, credits, deposits,
accounts or monies of the undersigned in possession, control or
custody of, or in transit of the Bank.
4
<PAGE> 6
11. THE UNDERSIGNED WAIVES THE BENEFIT OF ANY LAW THAT WOULD OTHERWISE
RESTRICT OR LIMIT THE BANK IN THE EXERCISE OF ITS RIGHTS, WHICH
HEREBY ACKNOWLEDGED, TO APPROPRIATE WITHOUT NOTICE, AT ANY TIME
HEREAFTER, ANY INDEBTNESS MATURED OR UNMATURED, OWING FROM THE
BANK TO THE UNDERSIGNED. THE BANK MAY, FROM TIME TO TIME, WITHOUT
DEMAND OR NOTICE OF ANY KIND, APPROPRIATE AND APPLY TOWARD THE
PAYMENT OF SUCH OF THE OBLIGATIONS, AND IN SUCH ORDER OF
APPLICATION, AS THE BANK MAY, FROM TIME TO TIME, ELECT ANY AND ALL
SUCH BALANCE, CREDITS, DEPOSITS, ACCOUNTS, MONIES, CASH
EQUIVALENTS AND OTHER ASSETS OF OR IN THE NAME OF THE UNDERSIGNED,
THEN OR THEREAFTER WITH THE BANK. THE UNDERSIGNED DOES HEREBY
ASSIGN AND TRANSFER TO THE BANK ANY AND ALL CASH, NEGOTIABLE
INSTRUMENTS, DOCUMENTS OF TITLE, CHATTEL PAPER, SECURITIES,
CERTIFICATES OF DEPOSIT, DEPOSIT ACCOUNTS, OTHER CASH EQUIVALENTS
AND OTHER ASSETS OF THE UNDERSIGNED IN THE POSSESSION OR CONTROL
OF THE BANK FOR ANY PURPOSE.
12. THE UNDERSIGNED WAIVES EVERY DEFENSE, CAUSE OF ACTION,
COUNTERCLAIM OR SET OFF WHICH THE UNDERSIGNED MAY NOT HAVE OR
HEREAFTER MAY HAVE TO ANY ACTION BY BANK IN ENFORCING THIS NOT OR
ANY OF THE OTHER OBLIGATIONS, RATIFIES AND CONFIRMS WHATEVER THE
BANK MAY DO PURSUANT TO THE TERMS HEREOF AND AGREES THAT THE BANK
SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGEMENT OR MISTAKE OF FACT
OR LAW EXCEPT FOR THOSE ERRORS OR MISTAKES WHICH RESULT FROM THE
BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE BANK AND THE
UNDERSIGNED, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
IRREVOCABLY THE RIGHT EITHER MAY HAVE TO TRAIL BY JURY WITH
RESPECT TO ANY LEGAL PROCEEDING BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OF THE OTHER
OBLIGATIONS, OR ANY AGREEMENT, EXECUTED OR CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH OR ANY COURSE OF CONDUCT OR
COURSE OF DEALING IN WHICH THE BANK AND THE UNDERSIGNED ARE
ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
BANK GRANTING ANY FINANCIAL ACCOMMODATIONS TO THE UNDERSIGNED.
13. The Undersigned, and any other party liable with respect to the
Obligations, including any guarantors, and any and all endorsers
and accommodation parties, and each one of them, waive any and all
presentment, demand, notice of dishonor, protest, and all other
notices and demands in connection with the enforcement of the
Bank's right hereunder, and hereby consent to, and waive notice of
release, with or without consideration, of the Undersigned. No
default shall be waived by the Bank except in writing. No delay
on the part of the Bank in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial
exercise by the bank of any right or remedy shall preclude other
or further exercise thereof, or the exercise of any other right or
remedy. This Note: (i) is valid, binding and enforceable in
accordance with its provisions, and no conditions exist to the
legal effectiveness of this Note; (ii) contains the entire
agreement between the Undersigned and the Bank; (iii) is the final
expression of the intention of the Undersigned and the Bank; and
(iv) superseded all negotiations, representations, warranties,
commitments, offers, contracts (of any kind of nature, whether
oral or written) prior to or contemporaneous with the execution
hereof. No prior or contemporaneous representation, warranties,
understandings, offers or agreements of any kind or nature,
whether oral or written, have been made by the Bank or relied upon
by the Undersigned is connection with the execution hereof. No
modifications, discharge, termination or waiver of any of the
provisions hereof shall be binding upon the Bank, except as
expressly set forth in a writing duly signed and delivered on
behalf of the Bank.
14. The Undersigned agrees to pay all reasonable costs, legal
expenses, attorneys' fees and paralegals' fees of every kind, paid
or incurred by the Bank in enforcing its rights hereunder,
including, but not limited to, litigation or proceedings initiated
under the United States Bankruptcy Code, or in respect to any
other of the Obligations, or in defending against any defense,
cause of action, counterclaim, set off or crossclaim based on any
act of commission or omission by the Bank with respect to this
Note or any other of the Obligations, promptly on demand of the
Bank or other person paying or incurring the same.
5
<PAGE> 7
15. TO INDUCE THE BANK TO MAKE THE LOAN EVIDENCED BY THIS NOTE, THE
UNDERSIGNED IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY
OR INDIRECTLY AS A RESULT OR IN CONSEQUENCE OF THIS NOTE OR ANY
OTHER AGREEMENT WITH THE BANK SHALL BE INSTITUTED AND LITIGATION
ONLY IN COURTS HAVING SITUS IN THE CITY OF CHICAGO, ILLINOIS, AND
THE UNDERSIGNED HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION AND
VENUE OF ANY STATE OR FEDERAL COURT LOCATED AND HAVING ITS SITUS
IN SAID CITY, AND WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS. THE UNDERSIGNED HEREBY WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY
BE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO
THE UNDERSIGNED AT THE ADDRESS INDICATED IN THE BANK'S RECORDS IN
THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT OF
OTHERWISE.
16. The loan evidenced hereby has been made and this Note has been
delivered at the Bank's main office. This Note shall be governed
and construed in accordance with the laws of the State of
Illinois, in which state it shall be performed, and shall be
binding upon the Undersigned and its successors and assigns. If
this Note contains any blanks when executed by the Undersigned,
the Bank is hereby authorized, without notice to the Undersigned,
to complete any such blanks according to the terms upon which the
loan or loans were granted. Wherever possible, each provision of
the Note shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Note
shall be prohibited by or be invalid under such law, such
provision shall be severable, and be deemed ineffective to the
extent of such prohibition or invalidity without invalidating the
remaining provisions of this Note. If more than one party shall
execute this Note, the term "Undersigned" as used herein shall
mean all parties signed this Note and their respective successors
and assigns, and such parties shall, as the case may be, be
jointly and severally obligated hereunder.
17. The Undersigned represents and warrants to the Bank that the
execution and delivery of this Note has been duly authorized by
resolution heretofore adopted by its Board of Directors and in
accordance with law and its bylaws, that said resolution have not
been amended or rescinded are in full force and effect and that
the officer or officers executing and delivering this Note for and
on behalf of the Undersigned are duly authorized so to act. The
Bank, in extending financial accommodations to the Undersigned, is
expressly acting and relying upon the aforesaid representations
and warranties.
18. The undersigned acknowledges and agrees that the lending
relationship hereby created with the Bank is and has been
conducted on an open and arm's length basis in which no fiduciary
relationship exists and that the Undersigned has not relied and is
not relying on any such fiduciary relationship in consummating the
loan evidence by this Note.
19. As used herein, all provisions shall include the masculine,
feminine, neuter, singular and plural thereof, wherever the
context and facts require such construction and in particular the
word "Undersigned" shall be so construed.
20. This Note is in replacement and substitution for, but not a
repayment of, that certain $15,000,000 Revolving Note dated June
30, 1996 of the Undersigned payable to the order of the Bank and
does not and shall not be deemed to constitute a novation
therefor.
6
<PAGE> 8
IN WITNESS WHEREOF, the Undersigned has executed this Note on the date
above set forth.
CDW COMPUTER CENTERS, INC.
By /s/ Michael P. Krasny
---------------------
Name: Michael P. Krasny
Title: Chairman & Chief Executive
Officer
By /s/ Harry J. Harczak, Jr.
-------------------------
Name: Harry J. Harczak, Jr.
Title: Chief Financial Officer
HJM:mm
July 14, 1997
67315-1
7
<PAGE> 1
EXHIBIT 10 (nn)
REVOLVING NOTE BETWEEN THE COMPANY
AND THE NORTHERN TRUST COMPANY
DATED JUNE 30, 1997
<PAGE> 2
$15,000,000.00 Chicago, Illinois
Note Date: June 30, 1997
LINE OF CREDIT DEMAND NOTE
(CORPORATION - FIXED AND FLOATING RATES)
(UNCOMMITTED)
ON DEMAND, for value received, COMPUTER DISCOUNT WAREHOUSE, INC., an
Illinois corporation (the "Borrower"), promises to pay to the order of THE
NORTHERN TRUST COMPANY, an Illinois banking corporation (the "Lender"), the
aggregate unpaid principal balance of each advance (an "Advance" and
collectively the "Advances") made by the Lender to the Borrower hereunder. The
total principal amount of Advances outstanding at any one time hereunder shall
not exceed FIFTEEN MILLION and no/100ths UNITED STATES DOLLARS ($15,000,000.00).
The unpaid principal balance of each Advance shall bear interest from
the date thereof until its interim maturity date, as reflected in the records of
the Lender or on an annexed schedule (the "Interim Maturity Date") or the
occurrence of a demand for payment hereof, whichever is earlier, at the fixed or
floating rate (as the parties may agree) set forth in an annexed schedule or
otherwise in the Lender's records. The principal amount of each Advance shall
mature and be payable on its Interim Maturity Date, unless the Lender makes
prior demand for payment hereof, as provided below.
Accrued but unpaid interest on each Advance shall be payable on the
earlier of (a) the last day of each month, (b) its Interim Maturity Date, or (c)
upon payment of such Advance in full (whether pursuant to demand or otherwise).
Any Advance which is not paid in full on its Interim Maturity Date or on or
before demand shall thereafter bear interest, payable upon demand, until paid at
a rate equal to two percent (2%) in addition to the "Prime Rate" (as defined
below).
The Borrower hereby authorizes the Lender to charge any account of the
Borrower maintained with the Lender for any amounts due or payable hereunder;
unless the Borrower instructs otherwise, all Advances made to the Borrower under
this Note shall be credited to an account of the Borrower with the Lender. THE
LENDER AT ITS OPTION MAY MAKE ADVANCES HEREUNDER AND IN SO DOING SHALL BE
FULLY ENTITLED TO RELY SOLELY UPON INSTRUCTIONS, INCLUDING INSTRUCTIONS TO
MAKE TRANSFERS TO THIRD PARTIES, REASONABLY BELIEVED BY THE LENDER TO HAVE BEEN
GIVEN BY AN AUTHORIZED PERSON, WITHOUT INDEPENDENT INQUIRY OF ANY TYPE.
For purposes hereof, "Prime Rate" means the rate of interest per year
announced from time to time by the Lender called its prime rate, which may not
at any time be the lowest rate charged by the Lender. Changes in the interest
rate on any Advance resulting from a change in the Prime Rate shall take effect
as set forth in each announcement. Interest shall be computed for the actual
number of days elapsed on the basis of a year consisting of 360 days, including
the date an Advance is made and excluding the date an Advance or any portion
thereof is paid or prepaid.
All payments hereunder shall be payable at the principal office of the
Lender at 50 South LaSalle Street, Chicago, Illinois 60675, in lawful money of
the United States of America and in immediately available funds.
The Borrower may prepay without penalty or premium any Advance bearing
interest at a rate based on the Prime Rate. If the Borrower prepays, in whole or
in part, any Advance bearing any other interest rate or if the maturity of any
such fixed rate Advance is accelerated upon demand for payment hereof, the
Borrower shall also pay the Lender for all losses (including but not limited to
interest rate margin) or expenses incurred by reason of the liquidation or
re-employment of deposits acquired by the Lender to make the Advance or maintain
principal outstanding at a fixed rate. Upon the Lender's demand in writing
specifying such losses and expenses, the Borrower shall promptly pay them; the
Lender's specification shall be deemed correct in the absence of manifest error.
Each Advance shall be conclusively deemed to have been funded by or on behalf of
the Lender by the purchase of a deposit corresponding in amount to such Advance
and in maturity to such Advance's Interim Maturity Date.
The Lender shall, and is hereby authorized by the Borrower to, endorse
on a schedule annexed to this Note or otherwise record in its records the date
and principal amount of each Advance, the Interim Maturity Date, the applicable
interest rate, and the date and amount of each payment of principal and interest
made by the Borrower with respect to each such Advance; provided, however, the
failure of the Lender to make any endorsement on any schedule shall not limit or
otherwise affect the right of the Lender to repayment of all Advances (including
interest thereon) made by the Lender to the Borrower. The Lender's endorsements
as well as its records relating to Advances shall be rebuttably presumptive
evidence of the outstanding principal and interest on the Advances.
1
<PAGE> 3
The Borrower hereby represents and warrants to the Lender that (a) it
is a corporation existing and in good standing under the laws of its state of
incorporation and duly qualified, in good standing and authorized to do business
in each jurisdiction where the failure to so qualify would have a material and
adverse effect on its financial condition; (b) the borrowings hereunder and the
execution and delivery of this Note are within the Borrower's corporate powers,
have been duly authorized by all necessary corporate action, have received any
necessary governmental approval and do not contravene or conflict with any
provision of law or of the charter or by-laws of the Borrower or of any
agreement binding upon it; and (c) there has been no material adverse change in
the business, financial condition, properties, assets, operations or prospects
of the Borrower since the date of the latest financial statements provided by or
on behalf of the Borrower to the Lender.
The Borrower shall be deemed to have remade the foregoing
representations and warranties each time it requests an Advance hereunder,
except that (c) shall be deemed to refer to the then most recent financial
statements furnished to the Lender.
All sums outstanding under this Note shall be immediately due and
payable without further action of any kind on the part of the Lender, and the
Lender shall have and may exercise any and all rights and remedies available at
law or in equity, when the Lender demands payment hereof. Such sums shall be
deemed to have been so demanded, and shall be immediately and automatically due
and payable without any action of any kind on the part of the Lender, and the
Lender shall have and may exercise any and all rights and remedies available at
law or in equity, if any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by the Borrower (or is instituted against the Borrower
and remains undismissed for more than 60 days); or if the Borrower shall
authorize such a proceeding; or if the Borrower shall become insolvent,
generally shall fail or be unable to pay its debts as they mature, shall admit
in writing its inability to pay its debts as they mature, shall make a general
assignment for the benefit of its creditors, shall enter into any composition or
similar agreement, or shall suspend the transaction of all or a substantial
portion of its usual business.
All notices, requests and demands hereunder shall be deemed to have
been given or made when delivered by messenger or express delivery service, or
five (5) days after deposit in the U.S. mail, first class postage prepaid,
addressed, in each case:
(A) if to the Lender to 50 South LaSalle Street, Chicago, Illinois
60675 (Attention: Division Head, Mets I Division)
(B) if to the Borrower to its address set forth below,
or to such other address as may be hereafter designated in writing by the
respective parties hereto.
THIS NOTE AND ANY DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION
HEREWITH SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW
OF THE STATE OF ILLINOIS AND SHALL BE DEEMED TO HAVE BEEN EXECUTED AND DELIVERED
IN ILLINOIS. Unless the context requires otherwise, wherever used herein the
singular shall include the plural and vice versa. This Note shall bind the
Borrower, its successors and assigns, and shall inure to the benefit of the
Lender, its successors and assigns, except that the Borrower may not transfer or
assign any of its rights or interest hereunder without the prior written consent
of the Lender. The Borrower agrees to pay upon demand all expenses (including,
without limitation, reasonable attorneys' fees, legal costs and expenses, and
time charges of attorneys who may be employees of the Lender, in each case
whether in or out of court, in original or appellate proceedings or in
bankruptcy) incurred or paid by the Lender or any holder hereof in connection
with the enforcement or preservation of its rights hereunder or under any
document or instrument executed in connection herewith. The Borrower expressly
and irrevocably waives presentment, protest, demand and notice of any kind in
connection herewith.
BOTH PARTIES HEREBY IRREVOCABLY AGREES THAT, ALL SUITS, ACTIONS OR
OTHER PROCEEDINGS WITH RESPECT TO, ARISING OUT OF OR IN CONNECTION WITH THIS
NOTE OR ANY DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION HEREWITH SHALL BE
SUBJECT TO LITIGATION IN COURTS HAVING SITUS WITHIN CHICAGO, ILLINOIS. BOTH
PARTIES HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS, AND HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE TO REQUEST OR DEMAND TRIAL BY JURY, TO TRANSFER OR CHANGE THE
VENUE OF ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT BY THE LENDER IN
ACCORDANCE WITH THIS PARAGRAPH, OR TO CLAIM THAT ANY SUCH PROCEEDING HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
2
<PAGE> 4
NO PROVISION OF THIS NOTE OR ANY RELATED DOCUMENT OR INSTRUMENT SHALL
BE CONSTRUED TO REQUIRE THE LENDER TO EXTEND ANY CREDIT OR MAKE ANY LOAN TO THE
BORROWER, OR TO REQUIRE THE BORROWER TO BORROW, WHETHER OR NOT ANY FEE IS
PAYABLE BY THE BORROWER IN CONNECTION HEREWITH. THE BORROWER CLEARLY UNDERSTANDS
AND AGREES THAT THIS NOTE IS A DEMAND OBLIGATION PAYMENT OF WHICH IN FULL
(INCLUDING PRINCIPAL, INTEREST, AND ANY OTHER AMOUNTS) MAY BE DEMANDED BY THE
LENDER AT ANY TIME IN ITS DISCRETION WITHOUT PRIOR ORAL OR WRITTEN NOTICE OF ANY
KIND, AND REGARDLESS OF WHETHER OR NOT AN ADVANCE HAS BEEN OUTSTANDING THROUGH
OR BEYOND ITS INTERIM MATURITY DATE.
COMPUTER DISCOUNT WAREHOUSE, INC.
By: /s/ Harry Harczak
-------------------------
Name: Harry Harczak
Title: Chief Financial Officer
By: /s/ Michael P. Krasny
--------------------------
Name: Michael P. Krasny
Title: Chairman and Chief Executive Officer
Address for notices:
CDW Computer Centers, Inc.
200 North Milwaukee Ave.
Vernon Hills, Illinois 60061
Attention: Mr. Harry Harczak
FORM 9640-B LARGE CORPORATE BORROWERS, UNCOMMITTED DEMAND LINE
3
<PAGE> 5
June 10, 1997
Mr. Harry Harczak
Chief Financial Officer
CDW COMPUTER CENTERS, INC.
1020 E. Lake Cook Road
Buffalo Grove, IL 60089
Dear Harry:
The interest rate that The Northern Trust Company will offer you on Advances
made under the Line of Credit Demand Note dated June 30, 1997 executed by CDW
Computer Centers, Inc. are Prime - 2.5% (with a floor of NY Federal funds +.
45%), NY Federal funds +. 45% or 30, 60, or 90 day LIBOR +. 45%.
YOU SHALL INCUR AND PAY A PREPAYMENT PENALTY FOR ANY LOSS, IF ANY, INCURRED BY
NORTHERN AS A RESULT OF THE PREPAYMENT OF ANY LIBOR ADVANCE, AND SUCH LOSS SHALL
BE CUSTOMARILY DETERMINED IN NORTHERN'S GOOD FAITH DISCRETION.
Please indicate your acceptance of the above by signing this letter and
returning it to my attention at Northern by June 30, 1997.
Best regards,
/s/ BRIAN D, BEITZ
------------------
Brian D. Beitz
Vice President
Accepted and Agreed
CDW Computer Centers, Inc.
By: /s/ MICHAEL P. KRASNY
---------------------
Michael P. Krasny
Chairman and Chief Executive Officer
By: /s/ HARRY J. HARCZAK
--------------------
Harry J. Harczak
Chief Financial Officer
Date: 6-27-97
-------
4
<PAGE> 6
CERTIFICATE
BORROWING RESOLUTION & INCUMBENCY
CORPORATION
The undersigned certifies that set forth below is a copy of a Resolution of the
Board of Directors of CDW Computer Centers, Inc., an Illinois corporation (the
"Corporation", or the "Borrower") which Resolution was properly adopted, has not
been modified or rescinded, and is still in effect:
Resolved that this Corporation borrow from The Northern Trust Company an amount
not to exceed Fifteen Million and no/100ths UNITED STATES DOLLARS
($15,000,000.00) at any one time outstanding pursuant to the terms of the Master
Note dated as of June 30, 1997 (the foregoing document(s), together with any
related documents, being collectively referred to as the "Loan
Document(s)")filed with this resolution, the form of which Loan Document(s) is
approved; that the any two of the "Named" officers be designated to execute and
deliver the Loan Documents with such changes as (s)he may approve as evidenced
by his (her) execution of the Loan Documents; that the Secretary or any
Assistant Secretary be and each hereby is, acting alone, authorized to, attest
the execution; that any two of the "Named" officers of this Corporation be
authorized to request borrowings under the Loan Documents, to execute and
deliver from time to time any notes and other documents and instruments in
connection therewith, whether or not specifically referenced in the Loan
Documents, and to take any actions deemed necessary or appropriate by such
officer to carry out the provisions of the Loan Documents and such notes and
other documents and instruments; and that any actions of the type set forth
above previously taken by any of the foregoing officers are hereby approved,
adopted and ratified.
The undersigned does hereby further certify that the persons named below have
been duly elected or appointed, have duly qualified as, and on this day are, the
"Named" officers of the Borrower, as indicated below, and that set forth
opposite the respective name of each is a sample of the signature of such
person:
NAME OFFICE SIGNATURE
Michael P. Krasny Chairman & CEO /s/ MICHAEL P. KRASNY
- ----------------- -------------- ----------------------
Gregory Zeman President /s/ GREGORY ZEMAN
- ------------- --------- ----------------------
Harry J. Harczak Chief Financial Officer /s/ HARRY J. HARCZAK
- ---------------- ----------------------- ----------------------
Dated as of June 30,1997.
Signature /s/ MICHAEL P. KRASNY
----------------------
Name: Michael P. Krasny
------------------
Title: Chairman, Chief Executive Officer, Secretary and Treasurer
-----------------------------------------------------------
Name of Borrower: CDW Computer Centers, Inc.
---------------------------
The undersigned (MAY NOT BE THE SAME PERSON WHO SIGNS ABOVE) hereby
certifies that the person who executed the foregoing portion of this Certificate
on behalf of the Borrower have been duly elected or appointed as Secretary of
the Borrower, and that set forth above is the signature of such person.
Signature /s/ HARRY J. HARCZAK
---------------------
Type Name: Harry J. Harczak
-----------------
Title: Chief Financial Officer
------------------------
Name of Borrower: CDW Computer Centers, Inc.
---------------------------
5
<PAGE> 7
CERTIFICATE
NO AMENDMENT TO ARTICLES AND BYLAWS
The undersigned does hereby certify that the Articles of Incorporation
and Bylaws of CDW COMPUTER CENTERS, INC. , an Illinois corporation, as
previously furnished to The Northern Trust Company under Certificate(s) dated
June 30, 1995 , have not been amended, modified or rescinded in any respect
since such date, and remain in full force and effect.
Date as of June 30, 1997.
Signature /s/ MICHAEL P. KRASNY
----------------------
Type Name Michael P. Krasny
----------------------
Title Chairman, Chief Executive Officer, Secretary and Treasurer
-----------------------------------------------------------
Name of Borrower CDW Computer Centers, Inc.
-------------------------------
FORM 9718 (R 11/91)
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
dated June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 11,354
<SECURITIES> 69,001
<RECEIVABLES> 65,917
<ALLOWANCES> 1,500
<INVENTORY> 47,012
<CURRENT-ASSETS> 198,728
<PP&E> 22,361
<DEPRECIATION> 4,878
<TOTAL-ASSETS> 224,704
<CURRENT-LIABILITIES> 52,902
<BONDS> 0
0
0
<COMMON> 215
<OTHER-SE> 171,587
<TOTAL-LIABILITY-AND-EQUITY> 224,704
<SALES> 304,545
<TOTAL-REVENUES> 304,545
<CGS> 262,888
<TOTAL-COSTS> 262,888
<OTHER-EXPENSES> 21,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,043
<INCOME-TAX> 8,343
<INCOME-CONTINUING> 12,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,700
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0
</TABLE>
