UNITED STATES
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 September 30, 2003 | ||
| OR | ||
| o | 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 Corporation
| Illinois (State or other jurisdiction of incorporation or organization) |
36-3310735 (I.R.S. Employer Identification No.) |
|
| 200 N. Milwaukee Ave. Vernon Hills, Illinois (Address of principal executive offices) |
60061 (Zip Code) |
(847) 465-6000
(Registrant’s telephone number, including area code)
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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes x No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 31, 2003, 90,798,032 common shares were issued and 83,237,232 were outstanding.
CDW CORPORATION AND SUBSIDIARIES
INDEX
| Page No. | ||||||
| PART I. | Financial Information | |||||
| Item 1. | Financial Statements (unaudited): | |||||
| Condensed Consolidated Balance Sheets - | ||||||
| September 30, 2003 and December 31, 2002 | 1 | |||||
| Condensed Consolidated Statements of Income - | ||||||
| Three and nine months ended September 30, 2003 and 2002 | 2 | |||||
| Condensed Consolidated Statement of Shareholders’ Equity - | ||||||
| Nine months ended September 30, 2003 | 3 | |||||
| Condensed Consolidated Statements of Cash Flows - | ||||||
| Nine months ended September 30, 2003 and 2002 | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||
| Item 2. | Management’s Discussion and Analysis of | |||||
| Financial Condition and Results of Operations | 12 | |||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 22 | ||||
| Item 4. | Controls and Procedures | 22 | ||||
| PART II. | Other Information | |||||
| Item 6. | Exhibits and Reports on Form 8-K | 22 | ||||
| Signature | 23 | |||||
ii
Part I. Financial Information
Item 1. Financial StatementsCDW CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| September 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
| (unaudited) | |||||||||||
Assets |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 228,147 | $ | 157,140 | |||||||
Marketable securities |
300,818 | 347,474 | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $10,018 and $10,500, respectively |
455,569 | 333,084 | |||||||||
Merchandise inventory |
189,950 | 150,785 | |||||||||
Miscellaneous receivables |
21,008 | 14,084 | |||||||||
Deferred income taxes |
11,757 | 11,757 | |||||||||
Prepaid expenses |
5,470 | 4,212 | |||||||||
Total current assets |
1,212,719 | 1,018,536 | |||||||||
Property and equipment, net |
62,906 | 64,088 | |||||||||
Investment in and advances to joint venture |
2,638 | 5,176 | |||||||||
Deferred income taxes and other assets |
14,683 | 7,864 | |||||||||
Total assets |
$ | 1,292,946 | $ | 1,095,664 | |||||||
Liabilities and Shareholders’ Equity |
|||||||||||
Current liabilities: |
|||||||||||
Accounts payable |
$ | 210,478 | $ | 102,786 | |||||||
Accrued expenses: |
|||||||||||
Compensation |
35,508 | 33,057 | |||||||||
Income taxes |
16,912 | 17,945 | |||||||||
Other |
28,646 | 17,806 | |||||||||
Total current liabilities |
291,544 | 171,594 | |||||||||
Shareholders’ equity: |
|||||||||||
Preferred shares, $1.00 par value; 5,000 shares authorized; none issued |
— | — | |||||||||
Common shares, $.01 par value; 500,000 shares authorized; 90,518 and 89,669 shares issued, respectively |
905 | 897 | |||||||||
Paid-in capital |
393,450 | 346,054 | |||||||||
Retained earnings |
912,313 | 806,548 | |||||||||
Unearned compensation |
(403 | ) | (837 | ) | |||||||
Accumulated other comprehensive income |
56 | 3 | |||||||||
| 1,306,321 | 1,152,665 | ||||||||||
Less cost of common shares in treasury; 7,561 shares and 5,708 shares, respectively |
(304,919 | ) | (228,595 | ) | |||||||
Total shareholders’ equity |
1,001,402 | 924,070 | |||||||||
Total liabilities and shareholders’ equity |
$ | 1,292,946 | $ | 1,095,664 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
1
CDW CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net sales |
$ | 1,222,785 | $ | 1,150,970 | $ | 3,315,700 | $ | 3,210,626 | |||||||||
Cost of sales |
1,046,561 | 993,930 | 2,835,630 | 2,786,175 | |||||||||||||
Gross profit |
176,224 | 157,040 | 480,070 | 424,451 | |||||||||||||
Selling and administrative expenses |
84,657 | 67,186 | 221,728 | 196,396 | |||||||||||||
Net advertising expense |
19,004 | 931 | 46,842 | 3,244 | |||||||||||||
Income from operations |
72,563 | 88,923 | 211,500 | 224,811 | |||||||||||||
Interest income |
1,573 | 2,188 | 5,671 | 7,239 | |||||||||||||
Other expense, net |
(410 | ) | (377 | ) | (1,250 | ) | (1,136 | ) | |||||||||
Income before income taxes |
73,726 | 90,734 | 215,921 | 230,914 | |||||||||||||
Income tax provision |
29,122 | 35,840 | 85,289 | 91,211 | |||||||||||||
Net income |
$ | 44,604 | $ | 54,894 | $ | 130,632 | $ | 139,703 | |||||||||
Earnings per share: |
|||||||||||||||||
Basic |
$ | 0.54 | $ | 0.65 | $ | 1.57 | $ | 1.64 | |||||||||
Diluted |
$ | 0.52 | $ | 0.63 | $ | 1.52 | $ | 1.57 | |||||||||
Weighted-average number of
common shares outstanding: |
|||||||||||||||||
Basic |
82,791 | 84,206 | 83,367 | 85,212 | |||||||||||||
Diluted |
85,786 | 87,326 | 86,024 | 88,740 | |||||||||||||
Dividends per share |
$ | 0.30 | $ | 0.00 | $ | 0.30 | $ | 0.00 | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
2
CDW CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||
| Total | Other | |||||||||||||||||||||||||||||||
| Shareholders' | Common | Paid-in | Retained | Unearned | Treasury | Comprehensive | Comprehensive | |||||||||||||||||||||||||
| Equity | Shares | Capital | Earnings | Compensation | Shares | Income | Income | |||||||||||||||||||||||||
Balance at December 31, 2002 |
$ | 924,070 | $ | 897 | $ | 346,054 | $ | 806,548 | $ | (837 | ) | $ | (228,595 | ) | $ | 3 | ||||||||||||||||
Amortization of unearned compensation |
434 | — | — | — | 434 | — | — | |||||||||||||||||||||||||
Exercise of stock options |
13,969 | 8 | 13,961 | — | — | — | — | |||||||||||||||||||||||||
Issuance of common stock in connection with Employee Stock Purchase Plan |
2,247 | — | 2,247 | — | — | — | — | |||||||||||||||||||||||||
Tax benefit from stock option and
restricted stock transactions |
31,188 | — | 31,188 | — | — | — | — | |||||||||||||||||||||||||
Purchase of treasury shares |
(76,324 | ) | — | — | — | — | (76,324 | ) | — | |||||||||||||||||||||||
Cash dividends |
(24,867 | ) | — | — | (24,867 | ) | — | — | — | |||||||||||||||||||||||
Net income |
130,632 | — | — | 130,632 | — | — | — | $ | 130,632 | |||||||||||||||||||||||
Net unrealized gains on marketable securities |
15 | — | — | — | — | — | 15 | 15 | ||||||||||||||||||||||||
Foreign currency translation adjustment |
38 | — | — | — | — | — | 38 | 38 | ||||||||||||||||||||||||
Comprehensive income |
— | — | — | — | — | — | — | $ | 130,685 | |||||||||||||||||||||||
Balance at September 30, 2003 |
$ | 1,001,402 | $ | 905 | $ | 393,450 | $ | 912,313 | $ | (403 | ) | $ | (304,919 | ) | $ | 56 | ||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
3
CDW CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Cash flows from operating activities: |
||||||||||
Net income |
$ | 130,632 | $ | 139,703 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||
Depreciation |
11,286 | 11,836 | ||||||||
Accretion of marketable securities |
788 | 488 | ||||||||
Stock-based compensation expense |
434 | 815 | ||||||||
Allowance for doubtful accounts |
(828 | ) | 1,000 | |||||||
Deferred income taxes |
1,131 | 1,382 | ||||||||
Tax benefit from stock option and restricted stock transactions |
31,188 | 62,066 | ||||||||
Changes in assets and liabilities: |
||||||||||
Accounts receivable |
(117,253 | ) | (44,708 | ) | ||||||
Miscellaneous receivables and other assets |
(9,731 | ) | (7,054 | ) | ||||||
Merchandise inventory |
(23,085 | ) | (7,483 | ) | ||||||
Prepaid expenses |
(1,258 | ) | 243 | |||||||
Accounts payable |
103,550 | 6,474 | ||||||||
Accrued compensation |
1,738 | 1,426 | ||||||||
Accrued income taxes and other expenses |
8,880 | 26,379 | ||||||||
Net cash provided by operating activities |
137,472 | 192,567 | ||||||||
Cash flows from investing activities: |
||||||||||
Purchases of available-for-sale securities |
(1,577,510 | ) | (1,092,473 | ) | ||||||