CDW Corporation Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated June 12, 2013, details material agreements and compensatory arrangements entered into by CDW Corporation in anticipation of its planned Initial Public Offering (IPO). The filing addresses the transition from private ownership by Madison Dearborn Partners (MDP) and Providence Equity Partners (PEP) to a public company structure.
Key Financial Metrics and Agreements
The filing does not contain standard financial performance metrics such as revenue, profit, or cash flow for a specific reporting period. Instead, it outlines specific financial obligations and equity allocations:
- Termination Fees: Upon the closing of the IPO, the Company will pay a termination fee of $12,936,880 to MDP and $11,463,120 to PEP in exchange for ending the management services agreement.
- Equity Reserves: The 2013 Long-Term Incentive Plan (LTIP) reserves 11,700,000 shares of common stock. Additionally, 3,963,925 shares of restricted stock are expected to be granted in substitution for unvested B Units, assuming an IPO price of $21.50 per share.
- Employee Stock Purchase: The Coworker Stock Purchase Plan reserves 1,700,000 shares for issuance.
- Debt Unit Plan: The Restricted Debt Unit (RDU) Plan is based on a debt pool of $28.5 million face value of Senior Subordinated Notes due 2017.
Material Changes and New Plans
The filing reports the establishment of four new or amended plans effective June 12, 2013:
- Termination Agreement: Formalizes the exit of private equity sponsors (MDP and PEP) and the cessation of their management services.
- 2013 Senior Management Incentive Plan (SMIP): A cash-based annual incentive plan for officers and senior managers. Performance targets may include stock price, EPS, EBITDA, revenue, and strategic business criteria.
- 2013 Long-Term Incentive Plan (LTIP): Provides for incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, and performance awards. Options must have an exercise price of at least 100% of fair market value.
- Coworker Stock Purchase Plan: Allows eligible employees to purchase stock via payroll deductions (1% to 15%) at 95% of the fair market value at the end of quarterly offering periods.
- Amended RDU Plan: Modified to increase retentive value in connection with the anticipated redemption of Senior Subordinated Notes using IPO proceeds. Interest credits will cease upon redemption, replaced by cash retention pools.
Outlook, Risks, and Management Commentary
The primary focus of the filing is the structural preparation for the IPO. Management commentary is limited to the stated purposes of the new plans: attracting and retaining talent, aligning interests with stockholders, and ensuring a strong pay-for-performance linkage. The filing notes that the Termination Agreement and new plans are contingent upon the closing of the Offering. No specific risks or contingencies regarding future financial performance are detailed in this specific text, other than the standard conditions of the IPO closing.
Key Facts for Investor Verification
- Verify the total cash outflow of approximately $24.4 million payable to private equity sponsors upon IPO closing.
- Confirm the total number of shares reserved for employee equity incentives (11.7 million under LTIP + 1.7 million under Purchase Plan + 3.96 million substitution shares).
- Review the specific vesting schedules and performance metrics for the 2013 SMIP and LTIP in the full plan documents (Exhibits 10.2 and 10.3).
- Understand the mechanics of the RDU Plan amendment, specifically how the redemption of the $28.5 million debt pool affects future compensation liabilities.
- Note that the filing assumes an IPO price of $21.50 per share for the calculation of restricted stock substitution; actual numbers may vary based on the final offering price.