<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, 1998 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)
--------------------------------------------------------------------------
(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, 1998, 21,546,441 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 -
June 30, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Income -
Three and Six months ended June 30, 1998 and 1997 2
Condensed Consolidated Statement of Shareholders'
Equity - Three months ended June 30, 1998 3
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial
Statements 5-8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 16
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- ------------
ASSETS
<S> <C> <C>
Current assets :
Cash and cash equivalents $ 23,676 $ 18,233
Marketable securities 58,569 61,192
Accounts receivable, net of allowance for doubtful
accounts of $2,475 and $1,950, respectively 119,427 87,524
Miscellaneous receivables 4,975 3,960
Merchandise inventory 48,946 61,941
Prepaid expenses and other 889 759
Deferred income taxes 3,587 3,587
--------- ---------
Total current assets 260,069 237,196
Property and equipment, net 32,073 26,704
Deferred income taxes and other assets 5,747 5,741
--------- ---------
TOTAL ASSETS $ 297,889 $ 269,641
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities :
Accounts payable $ 46,758 $ 44,451
Accrued expenses :
Compensation 10,803 12,996
Exit costs 3,055 3,391
Income taxes 1,483 5,054
Other 4,249 3,433
--------- ---------
Total current liabilities 66,348 69,775
--------- ---------
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; 21,546 and 21,525 shares issued and
outstanding, respectively 215 215
Paid-in capital 75,759 74,680
Retained earnings 156,776 126,418
Unearned compensation (1,209) (1,447)
--------- ---------
Total shareholders' equity 231,541 199,866
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 297,889 $ 269,641
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
1
<PAGE> 4
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 408,945 $ 304,545 $ 793,536 $ 602,322
Cost of sales 357,238 262,888 692,682 520,722
--------- --------- --------- ---------
Gross profit 51,707 41,657 100,854 81,600
Selling and administrative expenses 26,851 21,586 52,643 43,613
--------- --------- --------- ---------
Income from operations 24,856 20,071 48,211 37,987
Interest income 1,042 1,032 2,211 1,989
Other income (expense), net (91) (60) (162) (111)
--------- --------- --------- ---------
Income before income taxes 25,807 21,043 50,260 39,865
Income tax provision 10,219 8,343 19,902 15,806
--------- --------- --------- ---------
Net income $ 15,588 $ 12,700 $ 30,358 $ 24,059
========= ========= ========= =========
Earnings per share
Basic $ 0.72 $ 0.59 $ 1.41 $ 1.12
========= ========= ========= =========
Diluted $ 0.72 $ 0.59 $ 1.40 $ 1.11
========= ========= ========= =========
Weighted average number of
common shares outstanding
Basic 21,546 21,525 21,546 21,525
========= ========= ========= =========
Diluted 21,682 21,673 21,718 21,677
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
2
<PAGE> 5
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
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, 1997 21,525 $ 215 $ 74,680 $ 126,418 $ (1,447) $ 199,866
MPK Restricted Stock Plan forfeitures - - (1) - 1 -
Amortization of unearned compensation - - - - 237 237
Proceeds from exercise of stock options 21 - 440 - - 440
Tax benefit from stock option exercises - - 359 - - 359
Capital contribution for legal costs assumed - - 281 - - 281
by majority shareholder
Net income - - - 30,358 - 30,358
--------------------------------------------------------------------------------------
Balance at June 30, 1998 21,546 $ 215 $ 75,759 $ 156,776 $ (1,209) $ 231,541
======================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
3
<PAGE> 6
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,358 $ 24,059
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation 2,179 1,008
Accretion of marketable securities, net (1,354) (606)
Stock based compensation expense 237 234
Legal fees assumed by majority shareholder 281 51
Deferred taxe expense - 190
Tax benefit from stock option exercises 359 5,835
Changes in assets and liabilities:
Accounts receivable, net (31,903) (8,521)
Miscellaneous receivables (1,015) 1,942
Merchandise inventory 12,995 (5,550)
Prepaid expenses and other assets (136) (262)
Accounts payable 2,307 (8,414)
Accrued compensation (2,193) (1,181)
Accrued income taxes and other expenses (3,205) 5,345
Accrued exit charge (336) (56)
-------- --------
Net cash provided by operating activities 8,574 14,074
-------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (20,810) (12,575)
Redemptions of available-for-sale securities 7,250 7,575
Purchases of held-to-maturity securities (30,918) (42,058)
Redemptions of held-to-maturity securities 48,455 37,153
Purchase of property and equipment (7,548) (9,277)
-------- --------
Net cash used in investing activities (3,571) (19,182)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 440 -
-------- --------
Net cash provided by financing activities 440 -
-------- --------
Net increase (decrease) in cash 5,443 (5,108)
Cash and cash equivalents - beginning of period 18,233 16,462
-------- --------
Cash and cash equivalents - end of period $ 23,676 $ 11,354
======== ========
</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 brand name personal computers and related products through direct marketing
to end users within the United States. The Company's primary business is
conducted from a combined telemarketing, corporate office and warehouse and
showroom facility located in Vernon Hills, Illinois. The Company also operates a
second retail showroom in Chicago, Illinois.
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 1997 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
1997 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, 1998 and December 31, 1997, the results of operations for
the three and six months ended June 30, 1998 and 1997, the cash flows for the
six months ended June 30, 1998 and 1997, and the changes in shareholders' equity
for the six months ended June 30, 1998. The unaudited condensed consolidated
statements of income for such interim periods are not necessarily indicative of
results for the full year.
The Company has adopted Statements of Financial Accounting Standards Nos.
130 and 131 (SFAS 130, SFAS 131), "Reporting Comprehensive Income" and
"Disclosures about Segments of an Enterprise and Related Information". For the
three and six months ended June 30, 1998 and 1997 the Company has no components
of Comprehensive Income, as defined by SFAS 130, which are not contained in Net
Income as reported on the accompanying Consolidated Statements of Income. The
Company has determined that it currently operates as one business segment as
defined by SFAS 131.
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.
5
<PAGE> 8
Earnings Per Share
Effective December 31, 1997 the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Accordingly, the
Company has disclosed earnings per share calculated using both the basic and
diluted methods for all periods presented. The implementation of SFAS 128 has no
impact on the Company's earnings per share amounts as diluted earnings per
share, as defined by SFAS 128, is consistent with earnings per common and common
equivalent share as presented in previous periods. A reconciliation of basic and
diluted per-share computations is included in Note 7 to the financial
statements.
3. MARKETABLE SECURITIES
The amortized cost and estimated fair values of the Company's investments
in marketable securities at June 30, 1998 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:
U.S. Government and Government Agency Securities $ 14,864 $ 17 $ - $ 14,847
Redemptive tax-exempt preferred stocks 6,000 - - 6,000
----------------------------------------------------------------
Total available-for-sale 20,864 17 - 20,847
----------------------------------------------------------------
Held to maturity:
Bonds of states, municipalities, and political subdivisions 1,033 2 - 1,031
U.S. Government and Government Agency Securities 36,649 - (42) 36,691
----------------------------------------------------------------
Total held-to-maturity 37,682 2 (42) 37,722
----------------------------------------------------------------
Total marketable securities $ 58,546 $ 19 $ (42) $ 58,569
================================================================
</TABLE>
Estimated fair values of marketable securities are based on quoted market
prices. The amortized cost and estimated fair value of the Company's investments
in securities held-to-maturity at June 30, 1998 (in thousands) by contractual
maturity were:
<TABLE>
<S> <C> <C>
Estimated Amortized
Fair Value Cost
----------------------------
Due in one year or less $ 37,527 $ 37,567
Due in greater than one year 155 155
----------------------------
Total held-to-maturity $ 37,682 $ 37,722
============================
</TABLE>
6
<PAGE> 9
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. A trial date is currently set for
January 1999, in the United States District Court for the Northern District of
Illinois, Eastern Division for this matter.
For the three and six months ended June 30, 1998 the Company and majority
shareholder have incurred legal expenses of approximately $359,000 and $468,000,
respectively, compared with $30,000 and $83,000 for the three and six months
ended June 30, 1997, which have been assumed by the majority shareholder. If the
trial date proceeds as scheduled the Company will incur increased legal fees for
the preparation and trial of the lawsuit. 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. RELOCATION & EXIT ACCRUAL
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. During the six months ended June 30, 1998 the Company charged
approximately $336,000 against the exit accrual in cash payments for rent, real
estate taxes and maintenance of the facility. The Company is attempting to
sublease the Buffalo Grove facility. There is no assurance that remaining exit
liability of $3.1 million at June 30, 1998 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.
In March 1998, the Company acquired approximately 18 acres of vacant land
contiguous to its Vernon Hills facility for $4.3 million. The Company now owns
approximately 45 total acres, of which approximately 32 are vacant and available
for future expansion. The Company has commenced construction of a 100,000 square
foot addition to its current warehouse facility which is scheduled for
completion by September 1998. The estimated cost of the expansion is
approximately $4.5 million
6. FINANCING ARRANGEMENTS
The Company has an aggregate $50 million available pursuant to unsecured
lines of credit with two financial institutions expiring in June 1999, at which
time the Company intends to renew the lines. 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, 1998, there were no borrowings against either of the credit facilities.
7
<PAGE> 10
In December 1997, the Company established a stand-by letter of credit for
approximately $850,000 related to construction of the facility expansion. The
Company has pledged a note from the Federal National Mortgage Association,
included in investments held-to-maturity, with a face value of $1.1 million as
collateral for the letter of credit
7. EARNINGS PER SHARE
The Company has approximately 21,546,000 common shares outstanding at June
30, 1998. The Company has also granted options to purchase common shares to the
directors and coworkers of the Company under several stock option plans. These
options have a dilutive effect on the calculation of earnings per share. The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations as required by SFAS 128.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, Ended June 30,
1998 1997 1998 1997
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to
common shareholders (numerator) $ 15,558 $ 12,700 $ 30,358 $ 24,059
=========== =========== =========== ===========
Weighted average common
shares outstanding (denominator) 21,546 21,525 21,546 21,525
=========== =========== =========== ===========
Basic earnings per share $ 0.72 $ 0.59 $ 1.41 $ 1.12
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE:
Income available to
common shareholders (numerator) $ 15,558 $ 12,700 $ 30,358 $ 24,059
=========== =========== =========== ===========
Weighted average common
shares outstanding 21,546 21,525 21,546 21,525
Effect of dilutive securities:
Options on common stock 136 193 172 152
----------- ----------- ----------- -----------
Total common shares and dilutive securities
(denominator) 21,682 21,673 21,718 21,677
=========== =========== =========== ===========
Diluted earnings per share $ 0.72 $ 0.59 $ 1.40 1.11
=========== =========== =========== ===========
</TABLE>
8
<PAGE> 11
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.
<TABLE>
<S> <C> <C> <C> <C>
FINANCIAL INFORMATION Percentage of Net Sales
-----------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.4 86.3 87.3 86.5
---- ---- ---- ----
Gross profit 12.6 13.7 12.7 13.5
Selling and administrative expenses 6.5 7.1 6.6 7.1
--- --- --- ----
Income from operations 6.1 6.6 6.1 6.4
Other income, net 0.2 0.3 0.2 0.3
--- --- --- ----
Income before income taxes 6.3 6.9 6.3 6.7
Income tax provision 2.5 2.7 2.5 2.6
--- --- --- ---
Net income 3.8% 4.2% 3.8% 4.1%
=== === === ===
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
OPERATING STATISTICS Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
Number of orders shipped 557,410 424,746 1,135,659 869,927
Average order size $ 734 $ 717 $ 699 $ 692
Customers serviced 210,000 182,000 372,000 328,000
Number of account managers, end of period 520 319 520 319
Inventory turns 24 19 25 24
</TABLE>
9
<PAGE> 12
The following table presents net sales by product line as a percentage of
total net sales as well as the comparative growth rates in units for each of the
periods noted. Product classifications are based upon internal product code
classifications and is retroactively adjusted for the addition of new categories
but not for changes in individual product categorization.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANALYSIS OF PRODUCT MIX
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------- ----------------------------------
COMPARATIVE UNIT COMPARATIVE UNIT
MARCH 31, 1998 PRODUCT MIX GROWTH PRODUCT MIX GROWTH
- --------------------------- -------------- ------------- -------------- -------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
Notebooks & Laptops 19.7% 26.9% 19.0% 81.8% 20.0% 25.6% 29.4% 77.0%
Desktop Computers 16.3 12.4 118.0 66.3 16.0 12.8 102.4 76.2
Software 14.2 12.6 35.4 39.2 13.5 12.8 29.7 46.1
Printers 12.2 11.4 44.7 53.1 12.8 11.6 50.0 51.4
Data Storage Devices 11.4 10.4 23.7 44.2 11.3 10.4 23.0 56.8
Network & Communications
Products 7.7 7.5 59.7 48.7 8.0 7.8 54.5 55.7
Monitors & Video Products 9.4 8.6 112.6 10.6 9.0 8.7 101.9 13.0
Add-On Boards & Memory 3.9 4.8 33.7 74.6 4.2 4.7 29.2 92.7
Input Devices 2.6 2.9 24.5 46.0 2.7 3.0 26.8 49.5
Multi-Media Devices 2.0 2.0 69.7 46.8 2.0 2.0 67.3 54.7
Other Accessories 0.6 0.5 -6.5 173.5 0.5 0.6 -1.6 170.7
---- ---- ---- ----- ---- ---- ---- -----
Total 100.0% 100.0% 37.5% 53.1% 100.0% 100.0% 36.7% 59.4%
===== ===== ==== ===== ===== ===== ==== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net sales for the first quarter of 1998 increased 34.3% to a record $408.9
million compared to $304.5 million in the second quarter of 1997. The growth in
net sales is primarily attributable to the growth in the number of active
customers, average order size and sales per active customer. The Company's
average order size increased to $734 per order while orders shipped in the
quarter increased 31.2% to 557,000. The number of customers serviced for the
three months ended June 30, 1998 grew 15.4% to 210,000 from 182,000 for the
three months ended June 30, 1997 and average sales per active customer increased
16.3%.
Sales to business, government, educational and institutional accounts
increased to 87% of total sales from 80% in the second quarter of 1997. Desktop
computers remain the fastest growing product category with unit volume
increasing 118% and dollar volume 77%. Notebook computers continue to represent
the largest portion of the Company's sales at 20% while dollar volume decreased
1% from the second quarter of 1997.
The average selling price of desktop CPU's decreased 12% and the average
selling price of notebook CPU's increased 8% from the second quarter of 1997.
The Company believes there may be additional decreases in prices for personal
computers and related products. Such decreases require the Company to sell more
units in order to maintain or increase the level of sales. Should future
manufacturer price reductions or the Company's marketing efforts fail to
increase the level of unit sales, the Company's sales growth rate and operating
results could be adversely affected. Sales of Compaq, Hewlett Packard, IBM,
Microsoft and Toshiba products comprise a substantial portion of the Company's
sales. The loss of any of these, or any other key vendors, could have an adverse
affect on the Company's results from operations. The statement concerning future
sales and results from operations are forward looking statements that involve
certain risks and uncertainties such as stated above.
The fastest growing product categories in terms of sales dollars in the
second quarter of 1998 were desktop computers at 77%, software at 52%, data
storage devices at 48%, network and communication products at 47% and printers
at 44%. Demand for certain products offered by the Company, and the growth of
certain product categories, are driven by advances in technology and the
development of new products and applications by the industry manufacturers, and
acceptance of these new technologies and products by end-users. Any slowdown in
the rate of technological advancement and new product development by industry
10
<PAGE> 13
manufacturers could have a material adverse effect on the Company's future sales
growth.
Gross profit decreased as a percentage of net sales to 12.6% for the three
months ended June 30, 1998, compared to 13.7% for the three months ended June
30, 1997. The decrease in gross profit as a percentage of net sales is primarily
the result of lower selling margins achieved on certain product lines, lower
levels of rebates from vendors and increased shipping costs. On a
forward-looking basis, it is likely that the gross profit margin achieved will
be less than 13%, and could be less than the 12.6% achieved in the most recent
quarter. The statements concerning future gross profit is a forward looking
statement that involves certain risks and uncertainties such as the continued
participation by vendors in price protection and rebate programs, product mix,
market conditions and other factors which could result in a fluctuation of gross
margins below recent experience. Vendor rebate programs are at the discretion of
the vendor and many of these programs are dependent on achieving certain goals
and objectives. Accordingly, there is no certainty that such programs will
continue at their current levels or that the established goals and objectives
will be attained.
Selling and administrative expenses, which include net advertising expense,
other selling administrative expenses, the executive incentive bonus pool and
shareholder legal expense decreased to 6.5% of net sales in the second quarter
of 1998 versus 7.1% in the second quarter of 1997.
Net advertising expense decreased as a percentage of net sales to 0.6% from
1.3% for the three months ended June 30, 1998 and 1997, respectively. Gross
advertising expense decreased to 2.9% of net sales for the three months ended
June 30, 1998 versus 3.5% for the three months ended June 30, 1997 due to slight
decreases in catalog circulation and print advertising in national trade
magazines. Based upon the Company's planned marketing initiatives, future levels
of gross advertising expense as a percentage of net sales are likely to be
relatively consistent with or higher than the level achieved in the second
quarter of 1998. Cooperative advertising reimbursements as a percentage of net
sales increased to 2.3% of net sales in the second quarter of 1998 from 2.2% in
the second quarter of 1997, due to a combination of factors including changes to
billing rates, increased participation by vendors and new and expanded catalog
formats. The cooperative advertising reimbursement rate may fluctuate in future
quarters depending on the level of vendor participation achieved and collection
experience. The statements concerning future advertising expense and cooperative
advertising reimbursements are forward looking statements that involve certain
risks and uncertainties including the ability to identify and implement cost
effective incremental advertising and marketing programs as well as the
continued participation of vendors in the cooperative advertising reimbursement
program.
Other selling and administrative costs increased to 5.8% of net sales in
the three months ended June 30, 1998 from 5.3% in the prior year period due
primarily to increases in payroll and related costs to support the growth in
sales. The increase in payroll costs is due, in part, to increased investment in
the recruiting and training of new account managers. The Company continues to
recruit and train new account managers through CDW University. As of June 30,
1998 there were 520 account managers, an increase of 30% from 399 account
managers as of December 31, 1997. In addition, there were approximately 107
account managers in various phases of training in CDW University at the end of
the quarter.
The executive incentive bonus pool decreased to $597,000 for the three
months ended June 30, 1998 from $1.4 million for the three months ended June 30,
1997. For the current year the Compensation and Stock Option Committee has
established the bonus pool at 15% of the increase in operating income over the
prior year, versus 20% in prior periods. Of the $805 million decrease in the
bonus pool from the prior year, $606,000 is due to a lower level of growth in
operating income and the remaining $199,000 is due to the change in the bonus
pool rate.
Legal costs incurred by the majority shareholder for the three months ended
June 30, 1998 and 1997, in connection with the lawsuit filed by a former
shareholder were $359,000 and $30,000, respectively. A trial date has been set
for January 1999 for this case. If the trial date proceeds as scheduled, legal
costs incurred by the Company regarding this matter will increase as the trial
date approaches. 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
11
<PAGE> 14
expense with an offsetting increase to paid-in capital, net of tax effects.
Although the Company and Mr. Krasny believe that their actions were honest and
proper and that the suit by the former shareholder is without merit, should a
negative result occur in this action, Mr. Krasny could be required to transfer
certain of his shares of Common Stock to such former shareholder or determine to
sell certain of his shares to finance any assessed damages or settlements. Such
a transfer or sale by Mr. Krasny could adversely impact the market price of the
Common Stock
Interest income totaled $1.0 million for the three months ended June 30,
1998 compared to $1.0 million for the three months ended June 30, 1997
The effective income tax rate, expressed as a percentage of income before
income taxes, decreased to 39.6% for the three months ended June 30, 1998 from
39.7% for the three months ended June 30, 1997.
Net income for the three months ended June 30, 1998 was $15.6 million, a
23% increase over $12.7 million for the three months ended June 30, 1997.
Diluted earnings per share was $0.72 and $0.59 for the three months ended June
30, 1998 and 1997, respectively, an increase of 22%.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1997
Net sales for the six months ended June 30, 1998 increased 31.7% to a
record $793.5 million compared to $602.3 million in the same period of 1997. The
growth in net sales is primarily attributable to the growth in the number of
active customers, average order size and sales per active customer. The
Company's average order size increased to $699 per order while orders shipped
increased 30.5% to 1,136,000. The number of customers serviced for the six
months ended June 30, 1998 grew 13.4% to 372,000 from 328,000 for the six months
ended June 30, 1997 and average sales per active customer increased 16.0%.
Sales to business, government, educational and institutional accounts
increased to 86% of total sales from 79% in the six months ended June 30, 1997.
Desktop computers remain the fastest growing product category with unit volume
increasing 97% and dollar volume 53%.
The average selling price of desktop CPU's decreased 20.3% and the average
selling price of notebook CPU's decreased 1.2% from the first six months of
1997. The Company believes there may be additional decreases in prices for
personal computers and related products. Such decreases require the Company to
sell more units in order to maintain or increase the level of sales. Should
future manufacturer price reductions or the Company's marketing efforts fail to
increase the level of unit sales, the Company's sales growth rate and operating
results could be adversely affected. Sales of Compaq, Hewlett Packard, IBM,
Microsoft and Toshiba products comprise a substantial portion of the Company's
sales. The loss of any of these, or any other key vendors, could have an adverse
affect on the Company's results from operations. The statement concerning future
sales and results from operations are forward looking statements that involve
certain risks and uncertainties such as stated above.
The fastest growing product categories in terms of sales dollars in the
first six months of 1998 were desktop computers at 53%, printers at 46%, data
storage devices at 38%, software at 32% and network and communication products
at 29%. Demand for certain products offered by the Company, and the growth of
certain product categories, are driven by advances in technology and the
development of new products and applications by the industry manufacturers, and
acceptance of these new technologies and products by end-users. Any slowdown in
the rate of technological advancement and new product development by industry
manufacturers could have a material adverse effect on the Company's future sales
growth
Gross profit decreased as a percentage of net sales to 12.7% for the six
months ended June 30, 1998, compared to 13.5% for the six months ended June 30,
1997. The decrease in gross profit as a percentage of net sales is primarily the
result of lower selling margins achieved on certain product lines, lower levels
of rebates from vendors and increased shipping costs. On a forward-looking
basis, it is likely that the gross profit margin achieved will be less than 13%,
and could be less than the 12.7% achieved in the most recent
12
<PAGE> 15
six months. The statements concerning future gross profit is a forward
looking statement that involves certain risks and uncertainties such as the
continued participation by vendors in price protection and rebate programs,
product mix, market conditions and other factors which could result in a
fluctuation of gross margins below recent experience. Vendor rebate programs are
at the discretion of the vendor and many of these programs are dependent on
achieving certain goals and objectives. Accordingly, there is no certainty that
such programs will continue at their current levels or that the established
goals and objectives will be attained.
Selling and administrative expenses, which include net advertising expense,
other selling administrative expenses, the executive incentive bonus pool and
shareholder legal decreased to 6.6% of net sales in the first six months of 1998
versus 7.1% in the six months ended June 30, 1997
Net advertising expense decreased as a percentage of net sales to 0.7% from
1.3% for the six months ended June 30, 1998 and 1997, respectively. Gross
advertising expense decreased to 3.1% of net sales for the six months ended June
30, 1998 versus 3.5% for the six months ended June 30, 1997 due to slight
decreases in catalog circulation and print advertising in national trade
magazines. Based upon the Company's planned marketing initiatives, future levels
of gross advertising expense as a percentage of net sales are likely to be
relatively consistent with or higher than the level achieved in the six months
ended June 30, 1998. Cooperative advertising reimbursements as a percentage of
net sales increased to 2.4% of net sales for the six months ended June 30, 1998
from 2.2% for the six months ended June 30, 1997, due to a combination of
factors including changes to billing rates, increased participation by vendors
and new and expanded catalog formats. The cooperative advertising reimbursement
rate may fluctuate in future quarters depending on the level of vendor
participation achieved and collection experience. The statements concerning
future advertising expense and cooperative advertising reimbursement are forward
looking statements that involve certain risks and uncertainties including the
ability to identify and implement cost effective incremental advertising and
marketing programs as well as the continued participation of vendors in the
cooperative advertising reimbursement program.
Other selling and administrative costs increased to 5.8% of net sales in
the six months ended June 30, 1998 from 5.3% in the prior year period due
primarily to increases in payroll and related costs to support the growth in
sales. The increase in payroll costs is due, in part, to increased investment in
the recruiting and training of new account managers. The Company continues to
recruit and train new account managers through CDW University. As of June 30,
1998 there were 520 account managers, an increase of 30% from 399 account
managers as of December 31, 1997. In addition, there were approximately 107
account managers in various phases of training in CDW University at the end of
the quarter.
The executive incentive bonus pool decreased to $1.1 million for the six
months ended June 30, 1998 from $3.7 million for the six months ended June 30,
1997. Of the $2.6 million decrease in the bonus pool from the prior year
$800,000 results from an effective increase in the pool in the first six months
of 1997 due to the $4.0 million exit charge taken in 1996, $1.4 million is due
to a lower level of growth in operating income and the remaining $381,000 is due
to the change in the bonus pool rate. For the current year the Compensation and
Stock Option Committee has established the bonus pool at 15% of the increase in
operating income over the prior year, versus 20% in prior periods.
Legal costs incurred by the majority shareholder for the six months ended
June 30, 1998 and 1997, in connection with the lawsuit filed by a former
shareholder were $468,000 and $83,000, respectively. A trial date has been set
for January 1999 for this case. If the trial date proceeds as scheduled, legal
costs incurred by the Company regarding this matter will increase as the trial
date approaches. 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. Although the Company and Mr. Krasny believe that their actions were
honest and proper and that the suit by the former shareholder is without merit,
should a negative result occur in this action, Mr. Krasny could be required to
transfer certain of his shares of Common Stock to such former shareholder or
determine to sell certain of his shares to finance any assessed damages or
settlements. Such a transfer or sale by Mr. Krasny could adversely impact the
market
13
<PAGE> 16
price of the Common Stock.
Interest income totaled $2.2 million for the six months ended June 30, 1998
compared to $2.0 million for the six months ended June 30, 1997.
The effective income tax rate, expressed as a percentage of income before
income taxes, decreased to 39.6% for the six months ended June 30, 1998 from
39.7% for the six months ended June 30, 1997.
Net income for the six months ended June 30, 1998 was $30.4 million, a 26%
increase over $24.1 million for the six months ended June 30, 1997. Diluted
earnings per share was $1.40 and $1.11 for the six months ended June 30, 1998
and 1997, respectively, an increase of 26%.
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, 1998, the Company had cash, cash equivalents and marketable
securities of $82.2 million and working capital of $193.7 million, representing
an increase of $2.8 million in cash, cash equivalents and marketable securities
and an increase of $26.3 million in working capital from December 31, 1997.
As of June 30, 1998 the Company had an aggregate $50.0 million available
pursuant to unsecured credit facilities with two financial institutions expiring
in June 1999. 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, 1998 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, 1999.
CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998
Net cash provided by operating activities for the six months ended June 30,
1998 was $8.6 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 commercial accounts with open credit terms. Annualized inventory
turnover was approximately 25 times for the six months ended June 30, 1998.
Inventory turnover in 1998 has been positively impacted by a reduction in
inventory levels resulting from the implementation of build to order programs by
the major hardware manufacturers. The increase in accounts payable reflects
timing of payments to vendors at the end of the respective periods. Prepaid
expenses and other current assets increased $130,000 to approximately $889,000
as of June 30, 1998 and are primarily comprised of paper purchased for future
catalogs and prepaid insurance premiums.
Net cash used in investing activities for the six months ended June 30,
1998 was $3.6 million, including approximately $7.5 million used for capital
expenditures. The capital expenditures made by the Company were primarily
related to the purchase of additional land, the expansion of the Vernon Hills
facility and machinery and equipment for the Vernon Hills facility.
14
<PAGE> 17
Information Technology and the Year 2000
The Year 2000 Issue ("Y2K") is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
During a recent Year 2000 assessment, the Company identified a manageable
amount of legacy software that requires modification with the remainder already
compliant. Based on this assessment, the Company has determined that it will not
be required to modify or replace significant portions of its software to make
the systems perform properly after December 31, 1999. However, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be converted timely, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company.
The Company will utilize both internal and external resources to reprogram
and test software applications for Y2K compliance. The Company plans to complete
the Y2K project by December 31,1998. To date, the expenses of the Y2K project
have not had a material effect on the results of operations. Moreover, the
remaining expenses, which will be incurred through December 31, 1998, are not
expected to have a material effect on the results of operations.
The costs of the project and the date on which the Company plans to
complete the Y2K modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans, and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
Additionally, material differences could be caused by the ability of third
parties that interface with the Company's systems to make all necessary
modifications for Year 2000 compliance.
CERTAIN STATEMENTS INCLUDED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONCERNING THE COMPANY'S SALES
GROWTH, GROSS PROFIT AS A PERCENTAGE OF SALES, ADVERTISING EXPENSE AND
COOPERATIVE ADVERTISING REIMBURSEMENTS ARE FORWARD-LOOKING STATEMENTS THAT
INVOLVE CERTAIN RISKS AND UNCERTAINTIES, AS SPECIFIED HEREIN.
15
<PAGE> 18
PART II Other Information
ITEM 1. Legal Proceedings
As previously reported, the Company and Michael P. Krasny, the Company's
majority shareholder, are 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 1997 Annual Report on
Form 10-K for a detailed discussion of the lawsuit.)
On June 14, 1996, the District Court granted the motion to dismiss the
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 former shareholder filed an
appeal of the District Court decision to the United States Court of Appeals for
the Seventh Circuit. 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 Complaint because it
based its decision on inferences of fact inappropriate at this stage of the
proceedings. The case is currently proceeding in the District Court. The Company
and Mr. Krasny have answered the Complaint. They denied any wrongdoing or
liability on their part and asserted a number of affirmative defenses. The
District Court has established a trial date in January 1999 for this matter.
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.
Mr. Krasny 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. The applicable accounting rules provide that certain amounts
assumed by Mr. Krasny on behalf of the Company be recorded by the Company for
financial reporting purposes as an expense and a related increase to paid-in
capital, net of tax effects. Accordingly, while having no impact on the
Company's cash flow, any such expenses incurred by Mr. Krasny on behalf of the
Company, including litigation, settlement or judgement costs, would negatively
impact the Company's results of operations in the period incurred. Legal
expenses attributable to the case are expected to increase significantly as the
case is prepared for trial, which, although reimbursed by Mr. Krasny, will
result in a decrease in the Company's reported results of operations. Although
the Company and Mr. Krasny believe that their actions were honest and proper and
that the suit by the former shareholder is without merit, should a negative
result occur in this action, Mr. Krasny could be required to transfer certain of
his shares of Common Stock to such former shareholder or determine to sell
certain of his shares to finance any assessed damages or settlements. Such a
transfer or sale by Mr. Krasny could adversely impact the market price of the
Common Stock.
16
<PAGE> 19
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held an annual meeting of Shareholders on May 19, 1998.
(b) The names of all Directors of the Company are set forth in (c) below.
(c) Two 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
Votes For Votes Against Abstentions
----------- ------------- -----------
By Nominee
----------
-Michael P. Krasny 21,133,883 7,673 -
-Gregory C. Zeman 21,133,883 7,673 -
-Daniel B. Kass 21,133,883 7,673 -
-Joseph Levy, Jr. 21,133,883 7,673 -
-Michelle L. Collins 21,133,883 7,673 -
2. Ratification of Auditors
The selection of PricewaterhouseCoopers LLP, independent public
accountants, as auditors of the Company for the year ended
December 31, 1998.
Votes For Votes Against Abstentions
----------- ------------- -----------
21,130,665 10,891 -
ITEM 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C><C> <C>
(a) Exhibits:
27 (a) Financial Data Schedule (for the three months ended
June 30, 1998)
10 (qq) Revolving Note between the Company and LaSalle National
Bank dated June 28, 1998
10 (rr) Revolving Note between the Company and The Northern
Trust Company dated June 30, 1998
</TABLE>
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the six months ended June
30, 1998.
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, 1998 /s/ Harry J. Harczak, Jr.
---------------- ----------------------------
Harry J. Harczak, Jr.
Chief Financial Officer
Date August 14, 1998 /s/ Daniel F. Callen
---------------- -----------------------------
Daniel F. Callen
Chief Accounting Officer
18
<PAGE> 21
INDEX TO EXHIBITS
10 (qq) Revolving Note between the Company and LaSalle National Bank dated
June 28, 1998
10 (rr) Revolving Note between the Company and The Northern Trust Company
dated June 30, 1998
<PAGE> 1
EXHIBIT 10 (qq)
REVOLVING NOTE BETWEEN THE COMPANY
AND LASALLE NATINOAL BANK
DATED JUNE 28, 1998
1
<PAGE> 2
REPLACEMENT REVOLVING NOTE
$25,000,000 Dated as of June 28, 1998
Due: June 28, 1999
On or before June 28, 1999, CDW COMPUTER CENTERS, INC. (the "Undersigned"), for
value received, promises 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 principal sum of Twenty Five Million and 00/100 Dollars ($25,000,000) or if
less, the aggregate unpaid principal amount of all loans made by the Bank to the
Undersigned hereunder (this "Note"). The unpaid principal 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 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 borrowings 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, or (B) the Federal Funds Rate plus
one-half of one percent (+1/2%) per annum, for borrowings 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 quotations 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 or 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 it
shall be deemed to have selected a LIBOR Loan with a
<PAGE>
one(1) month Interest Period; provided that, at any time any Interest Period
expires less than one (1) month before the maturity 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.
2. Interest on that portion of the outstanding principal amount hereof
bearing interest at the Prime Rate shall be payable from the date hereof on such
aggregate unpaid principal amount on the last day of each month, commencing on
July 31, 1998, and at maturity hereof. Interest on LIBOR borrowings 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 principal 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 deposits of sufficient amount and maturity for
funding any LIBOR Loan 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 Loan shall automatically convert on the last 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 governmental authority or any central bank or
other fiscal, monetary or other authority having jurisdiction over the Bank or
its lending office (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 deposits 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 payments to the Bank of principal 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 condition 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 foregoing is to increase the cost to the Bank of
making or maintaining such LIBOR Loan or to reduce the amount of principal or
interest received by the Bank hereunder, then the Undersigned 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.
<PAGE>
5. The Undersigned hereby authorizes the Bank to charge any account of the
Undersigned for all sums due hereunder. Principal 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 laws 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. This Note evidences a revolving line of credit under which the
Undersigned is indebted to the Bank and evidences the aggregate unpaid principal
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
principal 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 principal
amount of the liabilities together with all interest accruing thereon. This Note
may be used for direct advances or letters 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 June 28, 2000. 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 fees 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 expenses (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 of 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 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, attachment,
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 1998 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
accommodation 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
statement of the Undersigned furnished to the Bank, or from the financial
condition of the Undersigned most recently disclosed to the Bank in any manner
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
<PAGE>
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 relating 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 $100,000,000, 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 purposes hereof, "Tangible Net Worth" shall mean the sum of
shareholders' equity plus debt subordinated to the Undersigned's 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 collection and reasonable
attorneys' and paralegals' fees, and in such order of application as the Bank
may, from time to time, elect, any balances, credits, deposits, accounts or
monies of the Undersigned in possession, control or custody of, or in transit to
the Bank.
11. THE UNDERSIGNED WAIVES THE BENEFIT OF ANY LAW THAT WOULD OTHERWISE
RESTRICT OR LIMIT THE BANK IN THE EXERCISE OF ITS RIGHTS, WHICH IS HEREBY
ACKNOWLEDGED, TO APPROPRIATE WITHOUT NOTICE, AT ANY TIME HEREAFTER, ANY
INDEBTEDNESS 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
BALANCES, 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 NOTE OR ANY OF THE OTHER OBLIGATIONS, RATIFIES AND
CONFIRMS WHATEVER THE BANK MAY DO PURSUANT TO THE TERMS HEREOF AND AGREES THAT
BANK SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGMENT OR MISTAKES 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
TRIAL 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
<PAGE>
PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK GRANTING ANY FINANCIAL
ACCOMMODATION 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 intentions of the
Undersigned and the Bank; and (iv) supersedes all negotiations, representations,
warranties, commitments, offers, contracts (of any kind or nature, whether or al
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 in connection with the execution hereof. No
modification, 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.
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 LITIGATED 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 this 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 signing this Note and their respective successors
and assigns, and such parties shall, as the case may be, be jointly and
severally obligated hereunder.
<PAGE>
17. The Undersigned represents and warrants to the Bank that the execution
and delivery of this Note has been duly authorized by resolutions heretofore
adopted by its Board of Directors and in accordance with law and its bylaws,
that said resolutions 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 exits and that the Undersigned
has not relied and is not relying on any such fiduciary relationship in
consummating the loan evidenced by this Note.
19. This Note is secured by an Assignment/Acceptance Agreement from the
Undersigned relating to a Federal Home Loan Bank Discount Note with a par value
of $1,100,000.
20. 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.
21. This Note is in replacement and substitution for, but not a repayment
of, that certain $15,000,000 Revolving Note dated as of December 9, 1997 of the
Undersigned payable to the order of the Bank and does not and shall not be
deemed to constitute a novation therefor.
IN WITNESS WHEREOF, the Undersigned has executed this Note on the date above set
forth.
CDW COMPUTER CENTERS, INC.
By: _______________________________
Name: Michael P. Krasny
Title: Chairman & Chief Executive Officer
By: _______________________________
Name: Harry J. Harczak, Jr.
Title: Chief Financial Officer
87763-1
<PAGE> 1
EXHIBIT 10 (rr)
REVOLVING NOTE BETWEEN THE COMPANY
AND THE NORTHERN TRUST COMPANY
DATED JUNE 30, 1998
<PAGE> 2
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 Twenty-Five Million and no/100ths UNITED STATES DOLLARS
($25,000,000.00 ) at any one time outstanding pursuant to the terms of the
Master Note dated as of June 30, 1998 (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 _____________________
Gregory Zeman President _____________________
Harry J. Harczak Chief Financial Officer _____________________
Dated as of June 30, 1998.
Signature _______________________________
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 has been duly elected or appointed as Secretary of the
Borrower, and that set forth above is the signature of such person.
Signature _______________________________
Type Name: Harry J. Harczak
Title: Chief Financial Officer
Name of Borrower: CDW Computer Centers, Inc.
<PAGE>
$25,000,000.00 Chicago, Illinois
Note Date: June 30, 1998
LINE OF CREDIT DEMAND NOTE
(CORPORATION - FIXED AND FLOATING RATES)
(UNCOMMITTED)
ON DEMAND, for value received, CDW Computer Centers, 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 TWENTY-FIVE
MILLION AND NO/100ths UNITED STATES DOLLARS ($25,000,000.00).
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 UPON WRITTEN INSTRUCTIONS ,
WHICH MUST BE SIGNED BY TWO NAMED OFFICERS, 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.
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
<PAGE>
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 AGREE 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
CONSENT AND SUBMIT 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.
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.
CDW COMPUTER CENTERS, INC.
By: ______________________________________________________
Name: Harry J. Harczak
Title: Chief Financial Officer
By: _____________________________________________________
Name: Michael P. Krasny
Title: Chairman and Chief Executive Officer
Address for notices:
200 North Milwaukee Avenue
Vernon Hills, Illinois 60061
Attention: Mr. Harry Harczak, CFO
FORM 9640-B LARGE CORPORATE BORROWERS, UNCOMMITTED DEMAND LINE
<PAGE>
CLOSING LIST AND MEMORANDUM
CDW COMPUTER CENTERS, INC
an Illinois corporation
200 North Milwaukee Avenue
Vernon Hills, Illinois 60061
(the "Borrower")
THE NORTHERN TRUST COMPANY
50 South LaSalle Street
Chicago, Illinois 60675
(the "Lender")
LINE OF CREDIT
$25,000,000.00
Banker: Brian D. Beitz
(312) 444-3987
Attorney: John A. Kelley
(312) 444-7175
Description of Transaction:
The Lender will increase to $25,000,000 its existing line of credit to the
Borrower. [The foregoing description is solely for the convenience of the
parties and does not constitute a commitment on the part of the Lender.]
DOCUMENTATION REQUIRED
Rec'd - Rec'd -
Item Copies Loan Loan
Number Required Officer Operating Title of Document
1. The ____ ____ Line of Credit Demand Note
Original
2. 2 ____ ____ Certificate - Borrowing Resolution
and Incumbency
3. 2 ____ ____ Certificate - No Amendment to Articles
and Bylaws
4. 2 ____ ____ Side Letter on Interest Rates
<PAGE>
June 30, 1998
CDW Computer Centers, Inc.
200 Milwaukee Avenue
Vernon Hills, Illinois 60061
Attn: Mr. Harry Harczak, Chief Financial Officer
Re: $25,000,000 Line of Credit Demand Note dated as of June 30, 1998 (the
"Note") issued by CDW Computer Centers, Inc. ("you" or the "Company") in favor
of The Northern Trust Company ("us" or the "Bank")
Dear Harry,
As you know, the Note provides for loans at interest rates as agreed to
from time to time between you and the Bank. You have asked for information as to
the rates we intend to quote. Currently, if a request for a loan came in from
you we would expect to quote a rate calculated based on 30, 60 or 90 day LIBOR
plus 0.45%, NY Fed Funds plus 0.45%, or Prime minus 2.5% (but not less than NY
Fed Funds plus 0.45%), as appropriate for the amount and term of the advance.
The Note is, of course, part of an uncommitted credit facility and we are
not obligated to make loans or to quote any particular rate. The Note gives us
and you the flexibility to apply such interest rates as we may mutually agree,
without locking either party in to the LIBOR or Fed Funds formulas or any
predetermined spread.
I hope this information is helpful to you. Please contact me if you have
any further questions or comments.
Best regards,
Brian D. Beitz
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
dated June 30, 1998 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-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 23,676
<SECURITIES> 58,569
<RECEIVABLES> 119,427
<ALLOWANCES> 2,475
<INVENTORY> 48,946
<CURRENT-ASSETS> 260,069
<PP&E> 32,073
<DEPRECIATION> 5,747
<TOTAL-ASSETS> 297,889
<CURRENT-LIABILITIES> 66,348
<BONDS> 0
0
0
<COMMON> 215
<OTHER-SE> 231,326
<TOTAL-LIABILITY-AND-EQUITY> 297,889
<SALES> 408,945
<TOTAL-REVENUES> 408,945
<CGS> 357,238
<TOTAL-COSTS> 357,238
<OTHER-EXPENSES> 26,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 25,807
<INCOME-TAX> 10,219
<INCOME-CONTINUING> 15,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,588
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
</TABLE>
