SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 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 May 7, 2001, 87,797,766 common shares were issued and 85,700,266 were
outstanding.
CDW COMPUTER CENTERS, INC.
TABLE OF CONTENTS
Page No.
----------
PART I. Financial Information
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 1
Condensed Consolidated Statements of Income -
Three months ended March 31, 2001 and 2000 2
Condensed Consolidated Statement of Shareholders' Equity -
Three months ended March 31, 2001 3
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 2001 and 2000 4
Notes to Condensed Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
March 31, December 31,
2001 2000
------------------ -------------------
------------------ -------------------
Assets
Current assets :
Cash and cash equivalents $ 121,120 $ 43,664
Marketable securities 92,989 158,957
Accounts receivable, net of allowance for doubtful
accounts of $8,000 and $7,000, respectively 328,276 337,424
Merchandise inventory 153,297 110,202
Miscellaneous receivables 11,371 13,442
Deferred income taxes 6,736 6,736
Prepaid expenses 3,396 3,458
------------------ -------------------
Total current assets 717,185 673,883
Property and equipment, net 65,030 61,966
Investment in and advances to joint venture 6,743 5,804
Deferred income taxes and other assets 6,438 6,784
------------------ -------------------
Total assets $ 795,396 $ 748,437
================== ===================
Liabilities and Shareholders' Equity
Current liabilities :
Accounts payable $ 121,931 $ 56,081
Accrued expenses :
Compensation 24,129 26,645
Income taxes 26,271 17,868
Other 10,484 9,730
Exit costs 1,736 1,862
------------------ -------------------
Total current liabilities 184,551 112,186
------------------ -------------------
Commitments and contingencies
Shareholders' equity :
Preferred shares, $1.00 par value; 5,000 shares
authorized; none issued - -
Common shares, $ .01 par value; 500,000 shares
authorized; 87,665 and 87,465 shares
issued, respectively 877 875
Paid-in capital 193,843 185,054
Retained earnings 493,089 452,613
Unearned compensation (3,494) (202)
------------------ -------------------
684,315 638,340
Less cost of common shares in treasury, 2,095 shares
and 200 shares, respectively (73,470) (2,089)
------------------ -------------------
Total shareholders' equity 610,845 636,251
------------------ -------------------
Total liabilities and shareholders' equity $ 795,396 $ 748,437
================== ===================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31,
----------------------------------------------
2001 2000
--------------------- ---------------------
Net sales $ 987,245 $ 863,988
Cost of sales 857,126 754,775
--------------------- ---------------------
Gross profit 130,119 109,213
Selling and administrative expenses 63,843 48,213
Net advertising expense 2,813 4,152
--------------------- ---------------------
Income from operations 63,463 56,848
Interest income 3,824 1,755
Other expense, net (106) (175)
--------------------- ---------------------
Income before income taxes 67,181 58,428
Income tax provision 26,705 23,137
--------------------- ---------------------
Net income $ 40,476 $ 35,291
===================== =====================
Earnings per share
Basic $ 0.47 $ 0.41
===================== =====================
Diluted $ 0.45 $ 0.39
===================== =====================
Weighted average number of
common shares outstanding
Basic 86,194 86,574
===================== =====================
Diluted 89,089 89,452
===================== =====================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
Common Shares Treasury Shares Total
------------------- Retained Unearned ------------------- Shareholders'
Shares Amount Paid-in Capital Earnings Compensation Shares Amount Equity
--------------------------------------------------------------------------------------------------
Balance at December 31, 2000 87,465 $ 875 $ 185,054 $ 452,613 $ (202) 200 $ (2,089) $ 636,251
Amortization of unearned
compensation 371 371
Compensatory stock option grants 106 106
Compensatory restricted
stock grant 100 1 3,662 (3,663) -
Exercise of stock options 100 1 599 600
Tax benefit from stock option
and Restricted stock
transactions 4,422 4,422
Purchase of treasury shares 1,895 (71,381) (71,381)
Net income 40,476 40,476
--------------------------------------------------------------------------------------------------
Balance at March 31, 2001 87,665 $ 877 $ 193,843 $ 493,089 $ (3,494) 2,095 $ (73,470) $ 610,845
==================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31,
2001 2000
---------------- ----------------
Cash flows from operating activities:
Net income $ 40,476 $ 35,291
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 3,181 1,954
Accretion of marketable securities (160) (799)
Stock-based compensation expense 477 90
Allowance for doubtful accounts 1,000 150
Deferred income taxes 380 931
Tax benefit from stock option and restricted stock transactions 4,422 44,899
Changes in assets and liabilities:
Accounts receivable 8,148 (54,778)
Miscellaneous receivables and other assets 2,030 (2,125)
Merchandise inventory (43,095) (7,715)
Prepaid expenses 28 (318)
Prepaid income taxes - (23,712)
Accounts payable 65,850 34,950
Accrued compensation (2,516) (10,825)
Accrued income taxes and other expenses 9,158 (10,753)
Accrued exit costs (126) 55
---------------- ----------------
Net cash provided by operating activities 89,253 7,295
---------------- ----------------
Cash flows from investing activities:
Purchases of available-for-sale securities (19,250) (16,610)
Redemptions of available-for-sale securities 52,000 19,900
Purchases of held-to-maturity securities - (42,627)
Redemptions of held-to-maturity securities 33,378 32,669
Investment in and advances to joint venture (5,648) (3,965)
Repayment of advances from joint venture 4,749 1,250
Purchase of property and equipment (6,245) (5,456)
---------------- ----------------
Net cash provided by / (used in) investing activities 58,984 (14,839)
---------------- ----------------
Cash flows from financing activities:
Purchase of treasury shares (71,381) -
Proceeds from exercise of stock options 600 1,674
---------------- ----------------
Net cash (used in) /provided by financing activities (70,781) 1,674
---------------- ----------------
Net increase / (decrease) in cash 77,456 (5,870)
Cash and cash equivalents - beginning of period 43,664 19,747
---------------- ----------------
Cash and cash equivalents - end of period $ 121,120 $ 13,877
================ ================
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
CDW Computer Centers, Inc. and its subsidiaries (collectively the
"Company") are engaged in the sale of brand name computing and related products
primarily through direct marketing to end users within the United States. The
Company's primary business is conducted from a combined sales, corporate office,
distribution center and showroom facility located in Vernon Hills, Illinois and
through www.cdw.com, its Internet site. The Company also operates sales offices
in Buffalo Grove, Lincolnshire and Chicago, Illinois, a retail showroom in
Chicago, Illinois and a government sales office in Lansdowne, Virginia.
The Company extends credit to business, government 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 to customers using third party credit
cards and for cash-on-delivery.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the
United States. Such principles were applied on a basis consistent with those
reflected in the 2000 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 2000 Annual Report on Form 10-K and
documents incorporated therein. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain all adjustments
(consisting solely of normal recurring accruals) necessary to present fairly the
financial position of the Company as of March 31, 2001 and December 31, 2000,
the results of operations for the three months ended March 31, 2001 and 2000,
the cash flows for the three months ended March 31, 2001 and 2000, and the
changes in shareholders' equity for the three months ended March 31, 2001. 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 No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and has
determined that the Statement will have no significant impact on its financial
statements for the three months ended March 31, 2001 or for the year ended
December 31, 2001.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, such estimates and assumptions affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Earnings Per Share
A reconciliation of basic and diluted earnings per share computations in
accordance with Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS 128) is included in Note 6 to the financial statements.
On April 22, 2000, the Board of Directors of the Company approved a
two-for-one stock split effected in the form of a stock dividend paid on June
21, 2000 to all common shareholders of record at the close of business on June
14, 2000. All per share and related amounts contained in these financial
statements and notes have been adjusted to reflect the stock split.
3. Marketable Securities
The amortized cost and estimated fair values of the Company's investments
in marketable securities at March 31, 2001, were (in thousands):
Gross
Unrealized
Estimated Holding Amortized
-------------------------
Fair Value Gains (Losses) Cost
-------------------------------------------------
Security
Type
Available-for-sale:
U.S. Government and Government Agency Securities $ 54,392 $ 243 $ - $ 54,149
-------------------------------------------------
Total available-for-sale 54,392 243 - 54,149
-------------------------------------------------
Held to maturity:
U.S. Government and Government Agency Securities 38,913 73 - 38,840
-------------------------------------------------
Total held-to-maturity 38,913 73 - 38,840
-------------------------------------------------
Total marketable securities $ 93,305 $ 316 $ - $ 92,989
=================================================
<FN>
The Company's investments in marketable securities at March 31, 2001 were
all due in one year or less by contractual maturity. Estimated fair values of
marketable securities are based on quoted market prices.
</FN>
4. Facilities & Exit Accrual
The Company is obligated under various operating lease agreements, primarily
for office facilities, in the Chicago metropolitan area. The lease agreements
generally provide for minimum rent payments and a proportionate share of
operating expenses and property taxes, and include certain renewal and expansion
options.
In March 2001, a ten-year lease agreement commenced for an office building
totaling approximately 156,000 square feet in Mettawa, Illinois. The building is
located within five miles of the Company's headquarters in Vernon Hills,
Illinois and will house sales, customer service, training and sales recruiting
personnel.
In April 2001, the Company opened a 250,000 square foot addition to its
distribution center in Vernon Hills, Illinois. The new addition functions as a
multi-functional receiving, stocking and shipping warehouse for ready ship
products such as computers, printers and monitors. The new addition nearly
doubles the Company's warehousing and shipping capacity.
The Company recorded a $4.0 million pre-tax non-recurring charge to
operating results for exit costs relating to its leased Buffalo Grove facility
in the first quarter of 1996. The exit costs consist primarily of the estimated
cost to the Company of subleasing the vacated facility, including holding costs,
the estimated costs of restoring the building to its original condition and
certain asset write-offs resulting from the relocation. The Company charged
approximately $126,000 against the exit accrual during the three months ended
March 31, 2001 and $55,000 in the same period of 2000. These amounts include
cash payments for rent, real estate taxes and restoration, net of sublease
payments.
5. Financing Arrangements
The Company has an aggregate $50 million available pursuant to two $25
million unsecured lines of credit with two financial institutions. One line of
credit expires in June 2001, at which time the Company intends to renew the
line, and the other does not have a fixed expiration date. Borrowings under the
first credit facility 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 March 31, 2001, there were no borrowings under either of the
credit facilities.
The Company has entered into security agreements with certain financial
institutions ("Flooring Companies") in order to facilitate the purchase of
inventory from various suppliers under certain terms and conditions. The
agreements allow for a maximum credit line of $73.0 million collateralized by
inventory purchases financed by the Flooring Companies. At March 31, 2001, all
amounts owed the Flooring Companies are included in trade accounts payable.
6. Earnings Per Share
At March 31, 2001, the Company had outstanding common shares totaling
approximately 85,570,000. 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.
Three Months Ended
March 31,
(in 000's except per share
data)
-----------------------------
2001 2000
------------ ------------
Basic earnings per share:
Income available to
common shareholders $ 40,476 $ 35,291
(numerator)
------------ ------------
Weighted average common
shares outstanding 86,194 86,574
(denominator)
------------
------------
Basic earnings per share $ 0.47 $ 0.41
============ ============
Diluted earnings per share:
Income available to
common shareholders $ 40,476 $ 35,291
(numerator)
------------ ------------
Weighted average common
shares outstanding 86,194 86,574
Effect of dilutive securities:
Options on common stock 2,895 2,878
------------ ------------
Total common shares and dilutive
securities (denominator) 89,089 89,452
------------ ------------
Diluted earnings per share $ 0.45 $ 0.39
============ ============
7. Share Repurchase Program
In January 2001, the Company's Board of Directors authorized the
purchase of up to 5 million shares of its common stock, slightly more than 5% of
its total outstanding shares, from time to time in both open market and private
transactions, as conditions warrant. The repurchase program is expected to
remain effective for approximately twenty-four months, unless sooner completed
or terminated by the Board of Directors. The Company intends to hold the
repurchased shares in treasury for general corporate purposes, including
issuances under various employee stock option plans. In connection with the
program the Company purchased approximately 1,900,000 shares of its common
stock during the quarter at a total cost of approximately $71.4 million. These
repurchases included 1,500,000 shares repurchased on February 2, 2001, at a
total cost of $57.6 million ($38.423 per share) from Gregory C. Zeman, Vice
Chairman and Director, and Daniel B. Kass, Executive Vice President of Sales
and Director.
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. All per share amounts have been adjusted to reflect
the two-for-one stock split effected in the form of a stock dividend paid on
June 21, 2000.
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:
- --------------------------------------------------------------------------------
Financial Information Percentage of Net Sales
-------------------------
Three Months Ended
March 31,
- --------------------------------------------------------------------------------
2001 2000
Net sales 100.0 % 100.0 %
Cost of sales 86.8 87.4
-------------------------
Gross profit 13.2 12.6
Selling and administrative expenses 6.5 5.6
Net advertising expense 0.3 0.5
-------------------------
Income from operations 6.4 6.5
Other income, net 0.4 0.2
-------------------------
Income before income taxes 6.8 6.7
Income tax provision 2.7 2.7
-------------------------
Net income 4.1 % 4.0 %
================================================================================
The following table sets forth for the periods indicated a summary of certain of
the Company's operating statistics:
- -------------------------------------------------------------------------------
Operating Statistics Three Months Ended
March 31,
------------------- Percent
2001 2000 Change
---- ---- ------
Number of invoices processed 1,091,790 920,082 19%
Average invoice size $955 $987 -3%
Number of account managers, end of period 1,170 820 43%
Commercial customers served 164,184 140,869 17%
Commercial customers served - trailing 12 months 320,060 294,861 9%
% of sales to commercial customers 96% 95% 1%
Annualized inventory turnover 26 23 n/a
Accounts receivable days sales outstanding 30 30 n/a
Direct web sales (000's) $ 150,584 $ 72,415 108%
Average daily unique web site users 105,000 97,300 8%
- -------------------------------------------------------------------------------
The following table presents net sales by product line as a percentage of
total net sales. Product classifications are based upon internal product code
classifications. Product mix for the three months ended March 31, 2000 has been
retroactively adjusted for certain changes in individual product categorization.
--------------------------------------------------------
Three Months Ended
Analysis of Product Mix March 31,
2001 2000
------------------
Notebook & Laptop Computers 15.5 % 22.5 %
Desktop Computers and Servers 14.0 14.8
-------------------------------------------------------
Subtotal CPU Products 29.5 37.3
Software 15.6 11.4
Data Storage Devices 14.3 12.6
Printers 13.0 11.6
Net/Comm Products 9.5 9.5
Video 8.2 7.7
Add-On Boards/Memory 5.0 5.9
Input Devices 2.6 2.3
Accessories and Other 2.3 1.7
-------------------------------------------------------
Total 100.0 % 100.0 %
=======================================================
Three months ended March 31, 2001 compared to three months ended March 31, 2000
Net sales in the first quarter of 2001 increased 14.3% to $987.2 million
compared to $864.0 million in the first quarter of 2000. The Company was able to
achieve growth by increasing the number of commercial customers served and
leveraging the diversity of its product mix, despite a difficult economic
environment and decreased levels of IT spending by customers.
The number of commercial customers served increased 17% to 164,184 in the
first quarter of 2001 from 140,869 in the first quarter of 2000. Net sales to
the Company's commercial customers increased 16.6% during the quarter while
sales to consumers decreased over 25% from the first quarter of 2000. Sales to
commercial accounts, including business, government, educational and
institutional customers, increased to 96.4% of net sales in the first quarter of
2001 from 94.5% in the first quarter of 2000, consistent with the Company's
focus on growing in the business-to-business marketplace.
The average selling price of desktop CPU's decreased 10.8% while those of
server CPU's decreased 19.1% and the average selling price of notebook CPU's
decreased 8.2% from the first quarter of 2000. The Company believes there may be
future 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. The Company's sales growth rate and operating
results could be adversely affected by future manufacturer price reductions or
if the Company's sales and marketing efforts fail to increase the level of unit
sales. 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 effect on the Company's results
from operations. The statements concerning future prices, 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 and the
respective growth rates in the first quarter of 2001 compared to the first
quarter of 2000 were:
Product Category Growth Rate
---------------- -----------
Software 54.3%
Data Storage Devices 28.7%
Input Devices 27.4%
Printers 26.4%
Video 20.4%
Demand for certain products 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.
The Company relies primarily on its dedicated sales force to serve its
customers and also believes its internet web site, www.cdw.com, is an integral
part of its business. Direct web sales are defined as those orders which are
entered directly on-line by customers after using the web site and/or talking
with a sales account manager to obtain product, pricing and other relevant
information. During the first three months of 2001, direct web sales grew 108%
to $150.6 million from $72.4 million in the same period of 2000. The number of
average daily unique web site users grew 8% to approximately 105,000 in the
first quarter of 2001 from approximately 97,300 in the same period of 2000.
Gross profit as a percentage of net sales for the three months ended March
31, 2001 increased to 13.2% as compared to 12.6% in the first quarter of 2000.
Improved vendor support programs and product line margins both contributed to
the increase in gross profit as a percentage of sales. On a forward-looking
basis, the Company's goal is to maintain gross profit as a percentage of sales
between 12.5% and 13.0%. The statement concerning future gross profit is a
forward looking statement that involves certain risks and uncertainties such as
the continued participation by vendors in inventory price protection and rebate
programs, product mix, market conditions and other factors which could result in
a fluctuation of gross margins below recent experience. Price protection and
rebate programs are at the discretion of the manufacturers, who may make changes
that limit the amount of price protection or rebates for which the Company is
eligible. Additionally, vendor rebate programs are generally dependent on
achieving certain goals and objectives and there is no certainty that the
established goals and objectives will be attained.
Selling and administrative expenses increased to 6.5% of net sales in the
three months ended March 31, 2001 from 5.6% in the same period of 2000. The
increase is primarily the result of increased payroll and occupancy costs, and
to a lesser extent, bad debt expense, all as a percentage of net sales.
Investments in facility infrastructure for future growth are expected to
increase fixed occupancy costs in the second quarter of 2001 by approximately $2
million over the first quarter of 2001. The Company's sales force increased to
approximately 1,170 account managers at March 31, 2001. The Company plans to
increase the number of sales account managers to between 1,350 and 1,400 by
December 31, 2001. During the first quarter the Company slowed the rate of
hiring for account managers and has deferred many planned hires to the second
half of 2001. The Company continues to evaluate its need for additional account
managers and will adjust hiring goals as business conditions dictate. On a
forward looking basis, selling and administrative expenses are likely to
increase as a percentage of net sales due to expansions in the number of
coworkers, continued investments in infrastructure and anticipated lower sales
growth levels.
Net advertising expense decreased as a percentage of net sales to 0.3% for
the three months ended March 31, 2001 from 0.5% in the same quarter of the prior
year. Gross advertising expense increased $1.3 million to 2.2% of net sales, a
decrease from 2.4% of net sales in the first quarter of 2000. 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 first quarter of 2001. Cooperative
advertising reimbursements were 1.9% of net sales in the first quarter of 2001,
consistent with the first quarter of 2000. Cooperative advertising
reimbursements as a percentage of net sales fluctuate based 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.
Interest income, net of other expenses, increased to $3.7 million in the
first quarter of 2001 compared to $1.6 million in the first quarter of 2000 due
to higher levels of cash available for investment and an increase in the rate of
interest being earned.
The effective income tax rate, expressed as a percentage of income before
income taxes, was 39.75% for the three months ended March 31, 2001, an increase
from 39.60% for the first quarter of 2000.
Net income in the first quarter of 2001 was $40.5 million, a 14.7% increase
over $35.3 million in the first quarter of 2000. Diluted earnings per share were
$0.45 for the three months ended March 31, 2001 and $0.39 in the same period of
2000, an increase of 15.4%.
Seasonality
Although the Company has experienced variability in the rates of sales
growth, it has not historically experienced significant seasonality in its
business. Sales to government customers in recent periods have increased at a
higher rate than sales to other customer types. Further, the buying patterns of
government customers typically result in seasonally high revenues during the
third quarter of the year. If sales to these customers continue to increase as a
percentage of overall sales, the Company may experience increased seasonality in
future periods.
Liquidity and Capital Resources
Working Capital
The Company has financed its operations and capital expenditures primarily
through cash flow from operations. At March 31, 2001, the Company had cash, cash
equivalents and marketable securities of $214.1 million and working capital of
$532.6 million, representing an increase of $11.5 million in cash, cash
equivalents and marketable securities and a decrease of $29.1 million in working
capital from December 31, 2000.
The Company has an aggregate $50 million available pursuant to two $25
million unsecured lines of credit with two financial institutions, one which
expires in June 2001, at which time the Company intends to renew the line, and
another which does not have a fixed expiration date. Borrowings under the first
credit facility 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
March 31, 2001, there were no borrowings under either of the credit facilities.
The Company's current and anticipated uses of its cash, cash equivalents
and marketable securities are to fund working capital requirements, capital
expenditures and the stock buyback program discussed below. The Company
anticipates capital expenditures related to facility expansions through December
31, 2001 to total between $24 million and $27 million, of which approximately
$18.4 million has been incurred as of March 31, 2001. The Company believes that
the funds held in cash, cash equivalents and marketable securities, and funds
available under the credit facilities will be sufficient to fund the Company's
working capital and cash requirements at least through March 31, 2002.
In January 2001, the Company's Board of Directors authorized the purchase
of up to 5 million shares of the Company's common stock, slightly more than 5%
of its total outstanding shares, from time to time in both open market and
private transactions, as conditions warrant. In connection with the program the
Company purchased approximately 1,900,000 shares of its common stock during the
quarter at a total cost of approximately $71.4 million. These repurchases
included 1,500,000 shares repurchased on February 2, 2001, at a total cost of
$57.6 million ($38.423 per share) from Gregory C. Zeman, Vice Chairman and
Director, and Daniel B. Kass, Executive Vice President of Sales and Director.
Cash flows for the three months ended March 31, 2001
Net cash provided by operating activities for the three months ended March
31, 2001, was $89.3 million. The primary factors that historically affect the
Company's cash flows from operations are accounts receivable, merchandise
inventory and accounts payable. Accounts receivable declined due to lower sales
volume. Days sales outstanding at March 31, 2001 was 30 as compared to 31 at
December 31, 2000. Inventory increased during the period, partially due to
higher levels of inventory in-transit. Annualized inventory turnover of
approximately 26 times for the three months ended March 31, 2001 was consistent
with the three month period ended December 31, 2000. The increase in accounts
payable reflects the increase in inventory levels as well as the timing of
payments to vendors at the end of the respective periods.
Net cash provided by investing activities for the three months ended March
31, 2001 was $59.0 million, including $66.1 million for redemptions of
marketable securities, offset by $6.2 million used for capital expenditures. At
March 31, 2001, the Company has a $6.7 million net investment in and loan to CDW
Leasing, LLC ("CDW-L"). The Company advanced $5.6 million to CDW-L during the
three months ended March 31, 2001 which was offset by repayments of $4.7
million. The Company is committed to loan up to $10 million to CDW-L to fund new
leases initiated by CDW-L. The terms of the loan provide for monthly interest
payments to the Company based on the 90 day LIBOR rate plus 2.2%.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change from the information provided in
Item 7a of the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
Part II Other Information
Item 1. Legal Proceedings
The Company is currently not a party to any material legal
proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
There are no exhibits to be filed with Form 10-Q.
(b) Reports on Form 8-K:
The Company filed Form 8-K on February 2, 2001 in conjunction with
the election of John A. Edwardson as President and Chief Executive
of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CDW Computer Centers, Inc.
(Registrant)
Date May 7, 2001 /s/ Harry J. Harczak, Jr.
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Harry J. Harczak, Jr.
Executive Vice President Corporate
Strategy and Chief Financial Officer
Date May 7, 2001 /s/ Sandra M. Rouhselang
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Sandra M. Rouhselang
Controller