Results of Operations
Results of operations, in dollars and as a percentage of Net sales are as follows:
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Year Ended December 31,
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2020
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2019
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Dollars in
Millions
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Percentage of
Net Sales
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Dollars in
Millions
|
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Percentage of
Net Sales
|
Net sales
|
|
$
|
18,467.5
|
|
|
100.0
|
%
|
|
$
|
18,032.4
|
|
|
100.0
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%
|
Cost of sales
|
|
15,257.4
|
|
|
82.6
|
|
|
14,992.5
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|
|
83.1
|
|
Gross profit
|
|
3,210.1
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|
17.4
|
|
|
3,039.9
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|
|
16.9
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Selling and administrative expenses
|
|
2,030.9
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|
11.0
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|
1,906.3
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|
10.6
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Operating income
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|
1,179.2
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|
6.4
|
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|
1,133.6
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6.3
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Interest expense, net
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(154.9)
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|
(0.8)
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|
(159.4)
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|
(0.9)
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Other expense, net
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(22.0)
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(0.1)
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|
(24.5)
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(0.1)
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Income before income taxes
|
|
1,002.3
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|
|
5.4
|
|
|
949.7
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|
|
5.3
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Income tax expense
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|
(213.8)
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(1.2)
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|
(212.9)
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(1.2)
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Net income
|
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$
|
788.5
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|
4.3
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%
|
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$
|
736.8
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|
4.1
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%
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Net sales
Net sales by segment, in dollars and as a percentage of total Net sales, and the year-over-year dollar and percentage change in Net sales are as follows:
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Year Ended December 31,
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2020
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2019
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(dollars in millions)
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|
Net Sales
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Percentage
of Total Net Sales
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Net Sales
|
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Percentage
of Total Net Sales
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Dollar
Change
|
|
Percent
Change(1)
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Corporate
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$
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6,846.0
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37.1
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%
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$
|
7,499.0
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41.6
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%
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$
|
(653.0)
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|
(8.7)
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%
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Small Business
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1,397.1
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7.6
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1,510.3
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8.4
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(113.2)
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(7.5)
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Public:
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Government
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2,978.5
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16.1
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2,519.3
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14.0
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459.2
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18.2
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Education
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|
3,458.1
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18.7
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2,411.6
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13.4
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1,046.5
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43.4
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Healthcare
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1,701.1
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|
9.2
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1,933.9
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10.7
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(232.8)
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(12.0)
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Total Public
|
|
8,137.7
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|
44.0
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6,864.8
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38.1
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1,272.9
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18.5
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Other
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2,086.7
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11.3
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2,158.3
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12.0
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(71.6)
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(3.3)
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Total Net sales
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$
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18,467.5
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100.0
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%
|
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$
|
18,032.4
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|
|
100.0
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%
|
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$
|
435.1
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|
|
2.4
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%
|
(1)There were 254 selling days for both the years ended December 31, 2020 and 2019.
Total Net sales for the year ended December 31, 2020 increased $435 million, or 2.4%, to $18,468 million, compared to the prior year. The impact of foreign currency fluctuations did not have an impact to Net sales growth. For additional information, see "Non-GAAP Financial Measure Reconciliations" below regarding constant currency Net sales growth.
For the year ended December 31, 2020, Net sales growth was driven by Education and Government customers prioritizing integrated solutions including notebooks, accessories and services to support remote enablement and the Census project. These Public customer increases were partially offset by decreases in most hardware categories in our other business segments due to the impact of the COVID-19 pandemic on customer demand. For additional information, see Note 18 (Segment Information) to the accompanying Consolidated Financial Statements.
Corporate segment Net sales for the year ended December 31, 2020 decreased $653 million, or 8.7%, compared to the year ended December 31, 2019. The decrease was primarily driven by decreases across all major hardware categories due to the impact of the COVID-19 pandemic on customer demand, partially offset by an increase in software.
Small Business segment Net sales for the year ended December 31, 2020 decreased by $113 million, or 7.5%, compared to the year ended December 31, 2019. The decrease was primarily driven by decreases across all major hardware categories due to the impact of the COVID-19 pandemic on customer demand.
Public segment Net sales for the year ended December 31, 2020 increased $1,273 million, or 18.5%, compared to the year ended December 31, 2019. The increase was primarily driven by growth in Education and Government customers. Net sales to Education customers increased 43.4% primarily driven by notebooks/mobile devices as schools invested in remote enablement. Net sales to Government customers increased 18.2% primarily driven by the continued delivery on the Census project comprised of other hardware, including accessories and smartphones, and services. Increases in notebooks/mobile devices also contributed to growth in Government customers due to agencies investing in remote enablement and device refreshes. Net sales to Healthcare customers decreased 12.0% primarily driven by decreases across most hardware categories, as well as decreases in software and services as hospitals experienced budget pressures and delayed projects.
Net sales in Other, which is comprised of results from our UK and Canadian operations, for the year ended December 31, 2020 decreased $72 million, or 3.3%, compared to the year ended December 31, 2019. Net sales for Canadian operations decreased across all hardware categories, with the exception of notebooks/mobile devices. Net sales for UK operations increased primarily driven by increases in notebooks/mobile devices and software, partially offset by decreases across most other major hardware categories. The impact of foreign currency exchange decreased Other Net sales by approximately 10 basis points, primarily due to the unfavorable translation of the Canadian dollar and British pound to the US dollar.
Gross profit
Gross profit increased $170 million, or 5.6%, to $3,210 million for the year ended December 31, 2020, compared to $3,040 million for the year ended December 31, 2019. As a percentage of Net sales, Gross profit margin increased 50 basis points to 17.4% for the year ended December 31, 2020. Gross profit margin was positively impacted by product margin and the mix of netted down revenues that are booked net of cost of goods sold, primarily software as a service.
Selling and administrative expenses
Selling and administrative expenses increased $125 million, or 6.5%, to $2,031 million for the year ended December 31, 2020, compared to $1,906 million for the year ended December 31, 2019. The increase was primarily due to higher payroll expenses consistent with higher Gross profit, higher average coworker count and coworker compensation investments, and a higher provision for credit losses driven by increased reserves reflecting the expected economic impact of the COVID-19 pandemic. The increase was partially offset by cost saving measures, including decreased travel and entertainment. Total coworker count was 9,982, up 86 from 9,896 at December 31, 2019 due to our recent acquisition.
As a percentage of total Net sales, Selling and administrative expenses increased 40 basis points to 11.0% for the year ended December 31, 2020, compared to 10.6% for the year ended December 31, 2019 primarily due to higher payroll expenses and a higher provision for credit losses, partially offset by lower travel and entertainment.
Operating income
Operating income by segment, in dollars and as a percentage of Net sales, and the year-over-year percentage change was as follows:
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Year Ended December 31,
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2020
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2019
|
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Dollars in
Millions
|
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Operating
Margin
|
|
Dollars in
Millions
|
|
Operating
Margin
|
|
Percent Change
in Operating Income
|
Segments:(1)
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Corporate
|
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$
|
489.5
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7.2
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%
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$
|
585.1
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|
|
7.8
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%
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|
(16.3)
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%
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Small Business
|
|
99.0
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|
7.1
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|
107.5
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7.1
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|
(7.8)
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Public
|
|
678.2
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|
8.3
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|
475.0
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|
6.9
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|
|
42.8
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Other(2)
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|
65.9
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3.2
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|
|
101.6
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|
|
4.7
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|
(35.0)
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Headquarters(3)
|
|
(153.4)
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nm*
|
|
(135.6)
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|
nm*
|
|
13.6
|
|
Total Operating income
|
|
$
|
1,179.2
|
|
|
6.4
|
%
|
|
$
|
1,133.6
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|
|
6.3
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%
|
|
4.0
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%
|
* Not meaningful
(1)Segment operating income includes the segment's direct operating income, allocations for certain Headquarters' costs, allocations for income and expenses from logistics services, certain inventory adjustments and volume rebates and cooperative advertising from vendors.
(2)Includes the financial results for our other operating segments, CDW UK and CDW Canada, which do not meet the reportable segment quantitative thresholds.
(3)Includes Headquarters' function costs that are not allocated to the segments.
Operating income was $1,179 million for the year ended December 31, 2020, an increase of $46 million, or 4.0%, compared to $1,134 million for the year ended December 31, 2019. Operating income increased primarily due to higher Gross profit dollars and cost saving measures implemented during the year, partially offset by higher payroll expenses and a higher provision for credit losses. Total operating margin percentage increased 10 basis points to 6.4% for the year ended December 31, 2020, from 6.3% for the year ended December 31, 2019 primarily due to higher Gross profit margin and cost saving measures implemented during the year, partially offset by higher payroll expenses and a higher provision for credit losses as percentage of Net sales.
Corporate segment Operating income was $490 million for the year ended December 31, 2020, a decrease of $96 million, or 16.3%, compared to $585 million for the year ended December 31, 2019. Corporate segment Operating income decreased primarily due to lower Gross profit dollars and higher payroll expenses due to coworker compensation investments. Corporate segment operating margin percentage decreased 60 basis points to 7.2% for the for the year ended December 31, 2020, from 7.8% for the year ended December 31, 2019 primarily due higher payroll expenses and a higher provision for credit losses as a percentage of Net sales, partially offset by the mix of netted down revenue and cost saving measures.
Small Business segment Operating income was $99 million for the year ended December 31, 2020, a decrease of $9 million, or 7.8%, compared to $108 million for the year ended December 31, 2019. Small Business segment Operating income decreased primarily due to lower Gross profit dollars, a higher provision for credit losses and higher payroll expenses due to coworker compensation investments. Small Business segment operating margin percentage remained flat at 7.1% for both the year ended December 31, 2020 and 2019 primarily due to the mix of netted down revenue, partially offset by increased payroll expenses and a higher provision for credit losses as a percentage of Net sales.
Public segment Operating income was $678 million for the year ended December 31, 2020, an increase of $203 million, or 42.8%, compared to $475 million for the year ended December 31, 2019. Public segment Operating income increased primarily due to higher Gross profit dollars, partially offset by higher sales payroll expenses. Public segment operating margin percentage increased 140 basis points to 8.3% for the year ended December 31, 2020, from 6.9% for the year ended December 31, 2019, primarily due to a mix into more profitable product offerings and services and by cost saving measures as a percentage of Net sales.
Other Operating income was $66 million for the year ended December 31, 2020, a decrease of $36 million, or 35.0%, compared to $102 million for the year ended December 31, 2019. Other Operating income decreased primarily due to lower Gross profit dollars, higher payroll expenses due to higher average coworker count and coworker compensation investments in addition to a
higher provision for credit losses. Other operating margin percentage decreased 150 basis points to 3.2% for the year ended December 31, 2020, from 4.7% for the year ended December 31, 2019, primarily due to higher payroll expenses and a higher provision for credit losses as a percentage of Net sales.
Interest expense, net
Interest expense, net in 2020 was $155 million, a decrease of $4 million, compared to $159 million in 2019. This decrease was primarily due to paying a lower effective interest rate on the term loan in 2020 compared to the capped rate in 2019, partially offset by additional interest expense on the senior notes issued in April 2020.
Income tax expense
Income tax expense was $214 million in 2020, compared to $213 million in 2019. The effective income tax rate, expressed by calculating income tax expense as a percentage of Income before income taxes, was 21.3% and 22.4% for 2020 and 2019, respectively.
For 2020, the effective tax rate differed from the US federal statutory rate primarily due to state income taxes, a discrete deferred tax expense as a result of an increase in the UK corporate tax rate, partially offset by excess tax benefits on equity-based compensation and tax benefits associated with new IRS regulations for global intangible low taxed income ("GILTI") and non-deductible expenses for the current and prior years. For 2019, the effective tax rate differed from the US federal statutory rate primarily due to state income taxes, partially offset by tax credits, excess tax benefits on equity-based compensation and a tax benefit related to CDW Canada’s acquisition of Scalar. The 2020 effective tax rate was lower than 2019 primarily due to the tax benefits associated with the new IRS regulations for GILTI and lower non-deductible expenses.
Non-GAAP Financial Measure Reconciliations
We have included reconciliations of Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP income before income taxes, Non-GAAP net income, and Net sales growth on a constant currency basis for the years ended December 31, 2020 and 2019 below.
Non-GAAP operating income excludes, among other things, charges related to the amortization of acquisition-related intangible assets, equity-based compensation and the associated payroll taxes, a workforce reduction program and acquisition and integration expenses. Non-GAAP operating income margin is defined as Non-GAAP operating income as a percentage of Net sales. Non-GAAP income before income taxes and Non-GAAP net income exclude, among other things, charges related to acquisition-related intangible asset amortization, equity-based compensation, net loss on extinguishment of long-term debt, a workforce reduction program, acquisition and integration expenses, and the associated tax effects of each. Net sales growth on a constant currency basis is defined as Net sales growth excluding the impact of foreign currency translation on net sales compared to the prior period.
Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP income before income taxes, Non-GAAP net income and Net sales growth on a constant currency basis are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance or financial position that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with US GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.
We believe these measures provide analysts, investors and management with helpful information regarding the underlying operating performance of our business, as they remove the impact of items that management believes are not reflective of underlying operating performance. Management uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business.
Non-GAAP operating income
Non-GAAP operating income was $1,405 million for the year ended December 31, 2020, an increase of $37 million, or 2.6%, compared to $1,368 million for the year ended December 31, 2019. As a percentage of Net sales, Non-GAAP operating income was 7.6% for each of the years ended December 31, 2020 and 2019.
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Year Ended December 31,
|
(dollars in millions)
|
2020
|
|
2019
|
Operating income
|
$
|
1,179.2
|
|
|
$
|
1,133.6
|
|
Amortization of intangibles(1)
|
158.1
|
|
|
178.5
|
|
Equity-based compensation
|
42.5
|
|
|
48.5
|
|
Workforce reduction charges
|
8.5
|
|
|
—
|
|
Other adjustments(2)
|
16.3
|
|
|
7.8
|
|
Non-GAAP operating income
|
$
|
1,404.6
|
|
|
$
|
1,368.4
|
|
Non-GAAP operating income margin
|
7.6
|
%
|
|
7.6
|
%
|
(1)Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
(2)Includes other expenses such as payroll taxes on equity-based compensation, expenses related to the relocation of the downtown Chicago office, and acquisition and integration expenses.
Non-GAAP net income
Non-GAAP net income was $954 million for the year ended December 31, 2020, an increase of $52 million, or 5.8%, compared to $902 million for the year ended December 31, 2019.
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|
Year Ended December 31, 2020
|
|
|
|
Year Ended December 31, 2019
|
|
|
(dollars in millions)
|
|
Income before income taxes
|
|
Income tax expense(1)
|
|
Net income
|
|
|
|
Income before income taxes
|
|
Income tax expense(1)
|
|
Net income
|
|
|
US GAAP, as reported
|
|
$
|
1,002.3
|
|
|
$
|
(213.8)
|
|
|
$
|
788.5
|
|
|
|
|
$
|
949.7
|
|
|
$
|
(212.9)
|
|
|
$
|
736.8
|
|
|
|
Amortization of intangibles(2)
|
|
158.1
|
|
|
(36.8)
|
|
|
121.3
|
|
|
|
|
178.5
|
|
|
(44.6)
|
|
|
133.9
|
|
|
|
Equity-based compensation
|
|
42.5
|
|
|
(37.0)
|
|
|
5.5
|
|
|
|
|
48.5
|
|
|
(36.6)
|
|
|
11.9
|
|
|
|
Net loss on extinguishments of long-term debt
|
|
27.3
|
|
|
(6.8)
|
|
|
20.5
|
|
|
|
|
22.1
|
|
|
(5.5)
|
|
|
16.6
|
|
|
|
Workforce reduction charges
|
|
8.5
|
|
|
(2.1)
|
|
|
6.4
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Other adjustments(3)
|
|
16.3
|
|
|
(4.1)
|
|
|
12.2
|
|
|
|
|
7.8
|
|
|
(4.9)
|
|
|
2.9
|
|
|
|
Non-GAAP
|
|
$
|
1,255.0
|
|
|
$
|
(300.6)
|
|
|
$
|
954.4
|
|
|
|
|
$
|
1,206.6
|
|
|
$
|
(304.5)
|
|
|
$
|
902.1
|
|
|
|
(1)Income tax on non-GAAP adjustments includes excess tax benefits associated with equity-based compensation.
(2)Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
(3)Includes other expenses such as payroll taxes on equity-based compensation, expenses related to the relocation of the downtown Chicago office, and acquisition and integration expenses.
Net sales growth on a constant currency basis
Net sales increased $435 million, or 2.4%, to $18,468 million for the year ended December 31, 2020, compared to $18,032 million for the year ended December 31, 2019. Net sales on a constant currency basis, which excludes the impact of foreign currency translation, increased $438 million, or 2.4%.
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
(dollars in millions)
|
|
2020
|
|
2019
|
|
% Change(1)
|
|
Net sales, as reported
|
|
$
|
18,467.5
|
|
|
$
|
18,032.4
|
|
|
2.4
|
%
|
|
Foreign currency translation(2)
|
|
—
|
|
|
(2.5)
|
|
|
|
|
Net sales, on a constant currency basis
|
|
$
|
18,467.5
|
|
|
$
|
18,029.9
|
|
|
2.4
|
%
|
|
(1)There were 254 selling days for both the years ended December 31, 2020 and 2019.
(2)Represents the effect of translating the prior period results of CDW UK and CDW Canada at the average exchange rates applicable in the current year.
Seasonality
While we have not historically experienced significant seasonality throughout the year, sales in our Corporate segment, which primarily serves US private sector business customers with more than 250 employees, are typically higher in the fourth quarter than in other quarters due to customers spending their remaining technology budget dollars at the end of the year. Additionally, sales in our Public segment have historically been higher in the third quarter than in other quarters primarily due to the buying patterns of the federal government and education customers. During 2020, we experienced variability compared to historic seasonality trends. As uncertainty due to COVID-19 remains, seasonality is expected to continue to be different than historical experience.
Liquidity and Capital Resources
Overview
We finance our operations and capital expenditures with internally generated cash from operations and borrowings under our revolving credit facility. As of December 31, 2020, we also had $1.0 billion of availability for borrowings under our senior secured asset-based revolving credit facility and an additional £50 million ($68 million) under the CDW UK revolving credit facility. Our liquidity and borrowing plans are established to align with our financial and strategic planning processes and ensure we have the necessary funding to meet our operating commitments, which primarily include the purchase of inventory, payroll and general expenses. We also take into consideration our overall capital allocation strategy, which includes investment for future growth, dividend payments, acquisitions and share repurchases. During 2020, we bolstered our liquidity position by completing a $600 million senior notes issuance in April 2020, and leveraging the lower interest rate environment by refinancing one of our higher interest rate senior notes in August 2020. We also temporarily suspended share repurchases from March 2020 through October 2020. We took additional measures to enhance our liquidity by implementing various cost savings initiatives. We believe we have adequate sources of liquidity and funding available for at least the next year; however, there are a number of factors that may negatively impact our available sources of funds. The amount of cash generated from operations will be dependent upon factors such as the successful execution of our business plan, general economic conditions and working capital management, including accounts receivable.
Long-Term Debt and Financing Arrangements
On April 21, 2020, we completed the issuance of $600 million aggregate principal amount of 4.125% Senior Notes due May 2025 at par.
On August 13, 2020, we completed the refinance of $600 million aggregate principal amount of 5.000% Senior Notes due September 2025 through the issuance of $700 million aggregate principal amount of 3.250% Senior Notes due February 2029 at par.
As of December 31, 2020, we had total indebtedness of $3.9 billion, of which $1.5 billion was secured indebtedness. At December 31, 2020, we were in compliance with the covenants under our various credit agreements and indentures.
For additional information regarding our debt and refinancing activities, see Note 10 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
Inventory Financing Agreements
We have entered into agreements with certain financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions. These amounts are classified separately as Accounts payable-inventory financing on the Consolidated Balance Sheets. We do not incur any interest expense associated with these agreements as balances are paid when they are due. For additional information, see Note 7 (Inventory Financing Agreements) to the accompanying Consolidated Financial Statements.
Share Repurchase Program
During 2020, we repurchased 2.6 million shares of our common stock for $341 million under the previously announced share repurchase program. During 2020, we temporarily suspended share repurchases from March 2020 through October 2020 as a precautionary measure in light of the COVID-19 pandemic. For additional information, see "Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Dividends
A summary of 2020 dividend activity for our common stock is as follows:
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Dividend Amount
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Declaration Date
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Record Date
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Payment Date
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$0.380
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February 6, 2020
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February 25, 2020
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March 10, 2020
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$0.380
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May 6, 2020
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May 25, 2020
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June 10, 2020
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$0.380
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August 4, 2020
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August 25, 2020
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September 10, 2020
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$0.400
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November 2, 2020
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November 25, 2020
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December 10, 2020
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$1.540
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On February 10, 2021, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.400 per share. The dividend will be paid on March 10, 2021 to all stockholders of record as of the close of business on February 25, 2021.
The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, business prospects, capital requirements, contractual restrictions, any potential indebtedness we may incur, restrictions imposed by applicable law, tax considerations and other factors that our Board of Directors deems relevant. In addition, our ability to pay dividends on our common stock will be limited by restrictions on our ability to pay dividends or make distributions to our stockholders and on the ability of our subsidiaries to pay dividends or make distributions to us, in each case, under the terms of our current and any future agreements governing our indebtedness.
Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted into law. The primary impact to our financial statements as a result of the CARES Act was the deferral of US corporate income tax payments from the second quarter of 2020 to July 2020 as well as the deferral of employer related payroll tax payments from the second, third and fourth quarters of 2020 with 50% to be paid in the fourth quarter of 2021 and the remaining 50% to be paid in the fourth quarter of 2022.
Cash Flows
Cash flows from operating, investing and financing activities are as follows:
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Year Ended December 31,
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(dollars in millions)
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2020
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2019
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Net cash provided by (used in):
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Operating activities
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$
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1,314.3
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$
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1,027.2
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Investing activities
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(201.0)
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(331.4)
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Net change in accounts payable - inventory financing
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93.0
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(1.3)
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Other financing activities
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45.8
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(748.5)
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Financing activities
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138.8
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(749.8)
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Effect of exchange rate changes on cash and cash equivalents
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4.1
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2.2
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Net increase (decrease) in cash and cash equivalents
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$
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1,256.2
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$
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(51.8)
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Operating Activities
Cash flows from operating activities are as follows:
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Year Ended December 31,
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(dollars in millions)
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2020
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2019
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Change
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Net income
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$
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788.5
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$
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736.8
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$
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51.7
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Adjustments for the impact of non-cash items(1)
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520.9
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256.7
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264.2
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Net income adjusted for the impact of non-cash items(2)
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1,309.4
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993.5
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315.9
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Changes in assets and liabilities:
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Accounts receivable(3)
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(226.4)
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(244.8)
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18.4
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Merchandise inventory(4)
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(71.4)
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(153.0)
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81.6
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Accounts payable-trade(5)
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253.7
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194.1
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59.6
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Other(6)
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49.0
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237.4
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(188.4)
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Net cash provided by operating activities
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$
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1,314.3
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$
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1,027.2
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$
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287.1
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(1)Includes items such as deferred income taxes, depreciation and amortization, and equity-based compensation expense.
(2)The change is due to stronger operating results driven by Gross profit growth and higher depreciation and amortization.
(3)The change is primarily due to improved collection performance partially offset by increased sales.
(4)The change is due to lower customer-driven and strategic stocking positions partially offset by timing of receipts and shipments.
(5)The change is primarily due to mixing into vendors with extended payment terms in 2021, increased sales and year-end inventory purchases.
(6)The change is primarily due to lower contract liabilities partially offset by higher accrued compensation expense in 2020 compared to 2019.
In order to manage our working capital and operating cash needs, we monitor our cash conversion cycle, defined as days of sales outstanding in accounts receivable plus days of supply in inventory minus days of purchases outstanding in accounts payable, based on a rolling three-month average. Components of our cash conversion cycle are as follows:
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December 31,
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(in days)
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2020
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2019
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Days of sales outstanding (DSO)(1)
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57
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57
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Days of supply in inventory (DIO)(2)
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14
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14
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Days of purchases outstanding (DPO)(3)
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(54)
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(53)
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Cash conversion cycle
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17
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18
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(1)Represents the rolling three-month average of the balance of Accounts receivable, net at the end of the period, divided by average daily Net sales for the same three-month period. Also incorporates components of other miscellaneous receivables.
(2)Represents the rolling three-month average of the balance of Merchandise inventory at the end of the period divided by average daily Cost of sales for the same three-month period.
(3)Represents the rolling three-month average of the combined balance of Accounts payable-trade, excluding cash overdrafts, and Accounts payable-inventory financing at the end of the period divided by average daily Cost of sales for the same three-month period.
The cash conversion cycle decreased to 17 days at December 31, 2020, compared to 18 days at December 31, 2019. DSO and DIO both remained unchanged at 57 days and 14 days, respectively. DPO increased by 1 day to 54 days driven by mixing into vendors with extended payment terms during the quarter compared to 2019.
Investing Activities
Net cash used in investing activities decreased $130 million in 2020 compared to 2019. The decrease was primarily due to decreased Capital expenditures of $78 million from fewer purchases of devices for the Census program and lower investments in acquisitions.
Financing Activities
Net cash provided by financing activities increased $889 million in the year ended December 31, 2020 compared to year ended December 31, 2019. The increase was primarily driven by the $600 million debt offering completed in April 2020, lower share repurchases and increased volume through our inventory financing arrangements, partially offset by decreased borrowings under our revolving credit facilities and higher dividend payments. For additional information regarding our debt activities, see Note 10 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
Contractual Obligations
We have future obligations under various contracts relating to debt and interest payments and operating leases. Our estimated future payments, based on undiscounted amounts, under contractual obligations that existed as of December 31, 2020, are as follows:
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Payments Due by Period
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(dollars in millions)
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Total
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2021
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2022-2023
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2024-2025
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2026 & Thereafter
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Term Loan(1)
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$
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1,577.4
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$
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42.2
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$
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83.6
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$
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82.5
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$
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1,369.1
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CDW UK Term Loan(1)
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56.5
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56.5
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—
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—
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—
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Senior Notes due 2024(2)
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701.5
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31.6
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63.3
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606.6
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—
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Senior Notes due 2025(2)
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711.4
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24.8
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49.5
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637.1
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—
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Senior Notes due 2028(2)
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791.3
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25.5
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51.0
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51.0
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663.8
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Senior Notes due 2029(2)
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893.5
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22.9
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45.5
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45.5
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779.6
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Operating leases(3)
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243.2
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32.8
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49.2
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37.8
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123.4
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Total
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$
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4,974.8
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$
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236.3
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$
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342.1
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$
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1,460.5
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$
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2,935.9
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(1)Includes future principal and cash interest payments on long-term borrowings through scheduled maturity dates. Interest payments for variable rate debt were calculated using interest rates as of December 31, 2020. Excluded from these amounts are the amortization of debt issuance and other costs related to indebtedness.
(2)Includes future principal and cash interest payments on long-term borrowings through scheduled maturity dates. Interest on the Senior Notes is calculated using the stated interest rates. Excluded from these amounts are the amortization of debt issuance and other costs related to indebtedness.
(3)For additional information, see Note 12 (Leases) to the accompanying Consolidated Financial Statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, results of operations or liquidity.
Issuers and Guarantors of Debt Securities
Each series of our outstanding unsecured senior notes (the "Notes") are issued by CDW LLC and CDW Finance Corporation (the "Issuers") and are guaranteed by CDW Corporation ("Parent") and each of CDW LLC's direct and indirect, 100% owned, domestic subsidiaries (the "Guarantor Subsidiaries" and, together with Parent, the "Guarantors"). All guarantees by Parent and the Guarantors are joint and several, and full and unconditional; provided that guarantees by the Guarantor Subsidiaries are subject to certain customary release provisions contained in the indentures governing the Notes.
The Notes and the related guarantees are the Issuers’ and the Guarantors’ senior unsecured obligations and are:
•structurally subordinated to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries and
•rank equal in right of payment with all of the Issuers' and the Guarantors’ existing and future unsecured senior debt.
The following tables set forth Balance Sheet information as of December 31, 2020 and December 31, 2019, and Statement of Operations information for the years ended December 31, 2020 and 2019 for the accounts of the Issuers and the accounts of the Guarantors (the "Obligor Group"). The financial information of the Obligor Group is presented on a combined basis and the intercompany balances and transactions between the Obligor Group have been eliminated.
Balance Sheet Information
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December 31,
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(dollars in millions)
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2020
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2019
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Current assets
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$
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5,161.3
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$
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3,601.6
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Goodwill
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2,239.1
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2,206.1
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Other assets
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572.1
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903.1
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Total Non-current assets
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2,811.2
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3,109.2
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Current liabilities
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3,265.0
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2,975.3
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Long-term debt
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3,856.5
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3,229.5
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Other liabilities
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209.8
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188.3
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Total Long-term liabilities
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4,066.3
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3,417.8
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Statements of Operations Information
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Year Ended December 31,
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(dollars in millions)
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2020
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2019
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Net sales
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$
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16,380.8
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$
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15,874.1
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Gross profit
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2,851.8
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2,666.8
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Operating income
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1,113.2
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1,032.1
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Net income
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738.8
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656.7
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Inflation
Inflation has not had a material impact on our operating results. We generally have been able to pass along price increases to our customers, though certain economic factors and technological advances in recent years have tended to place downward pressure on pricing. We also have been able to generally offset the effects of inflation on operating costs by continuing to emphasize productivity improvements. There can be no assurances, however, that inflation would not have a material impact on our sales or operating costs in the future.
Commitments and Contingencies
The information set forth in Note 17 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report is incorporated herein by reference.
Critical Accounting Policies and Estimates
The preparation of the Consolidated Financial Statements in accordance with US GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities in the Consolidated Financial Statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Historically, we have not made significant changes to the methods for determining these estimates as our actual results have not differed materially from our estimates. We do not believe it is reasonably likely that the estimates and related assumptions will change materially in the foreseeable future; however, actual results could differ from those estimates under different assumptions, judgments or conditions. We have reviewed our critical accounting policies with the Audit Committee of our Board of Directors.
Critical accounting policies and estimates are those that are most important to the portrayal of our financial condition and results of operations, and which require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and estimates addressed below. For additional information related to significant accounting policies used in the preparation of our Consolidated Financial Statements, see Note 1 (Description of Business and Summary of Significant Accounting Policies) to the accompanying Consolidated Financial Statements.
Revenue Recognition
We sell some of our products and services as part of bundled contract arrangements containing multiple deliverables, which may include a combination of different products and services. Significant judgment may be required when determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together.
For contracts consisting of multiple performance obligations, the total transaction price is allocated to each performance obligation based upon its standalone selling price. Judgment is required to determine the standalone selling price for each distinct performance obligation. For certain performance obligations, we will use a combination of methods to estimate the standalone selling price based on recent transactions. When evidence from recent transactions is not available to confirm that the prices are representative of the standalone selling price, an expected cost plus margin approach is used.
Additional judgment is required in determining whether we are the principal, and report revenues on a gross basis, or agent, and report revenues on a net basis. For each identified performance obligation in a transaction, we evaluate the facts and circumstances present to determine whether or not we control the specified good or service prior to transfer to the customer. This evaluation includes, but is not limited to, assessing indicators such as whether: (i) we are primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) we have inventory risk before the specified good or service has been transferred to a customer and (iii) we have discretion in establishing the price for the specified good or service. When the evaluation indicates we control the specified good or service prior to transfer to the customer, we are acting as a principal. When the evaluation indicates we do not control the specified good or service prior transfer to the customer, we are acting as an agent.
The nature of our contracts give rise to variable consideration in the form of volume rebates and sales returns and allowances. We estimate variable consideration at the most likely amount to which we expect to be entitled. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of our anticipated performance and all information that is reasonably available.
We recognize revenue on performance obligations when the customer obtains control over the specified good or service. That is, when the customer has the ability to direct the use of and obtain substantially all of the benefits from the good or service. For the sale of hardware and software, this is generally upon delivery to the customer. As a result, we perform an analysis to
estimate the amount of Net sales in-transit at the end of the period and adjust revenue and the related costs to reflect only what has been delivered to the customer. This analysis requires judgment whereby we perform an analysis of the estimated number of days of sales in-transit to customers at the end of each reporting period based on a weighted-average analysis of commercial delivery terms that include drop-shipment arrangements. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment.
Vendor Programs
We receive incentives from certain vendors related to cooperative advertising, volume rebates, bid programs, price protection and other programs. These incentives generally relate to written agreements with specified performance requirements with the vendors and are recorded as adjustments to Cost of sales or Merchandise inventory, depending on the nature of the incentive. We record vendor partner receivables related to these programs when the amounts are probable and reasonably estimable. Some programs are based on the achievement of specific targets, and we base our estimates on information provided by our vendors and internal information to assess our progress toward achieving those targets.
We also record reserves for vendor partner receivables for estimated losses due to vendors' inability to pay or rejections by vendors of claims. In estimating the required allowance, we take into consideration collections performance and the aging of the incentive receivables, as well as specific vendor circumstances.
Goodwill
Goodwill is allocated to reporting units expected to benefit from the business combination. Goodwill is not amortized but is subject to periodic testing for impairment at the reporting unit level on an annual basis each December 1, or more frequently if events or changes in circumstances indicate that the asset may be impaired. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition or sale or disposition of a significant portion of a reporting unit.
We may elect to utilize a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. As part of our qualitative assessment, judgment is required in weighing the effect of various positive and negative factors that may affect the fair value. We consider various factors, including the excess of fair value over carrying value from the last quantitative test, macroeconomic conditions, industry and market considerations, the projected financial performance and actual financial performance compared to prior year projected financial performance.
If we elect to bypass the qualitative assessment, or if indicators of impairment exist, a quantitative impairment test is performed. As part of the quantitative assessment, application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. Fair value of a reporting unit is determined by using a weighted combination of an income approach and a market approach, as this combination is considered the most indicative of our fair value in an orderly transaction between market participants. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, determination of our weighted average cost of capital, future market conditions and profitability of future business strategies. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. However, our past estimates of fair value would not have indicated an impairment when revised to include subsequent years' actual results.
Intangible Assets
Intangible assets include customer relationships, trade names, internally developed software and other intangibles. Intangible assets are amortized on a straight-line basis over the estimated useful life of the asset and reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The valuation and classification of these assets and the assignment of useful lives involve significant judgment and the use of estimates. The valuation, classification and assignment of useful lives are derived using market inputs, historic experience and third-party guidance.
Income Taxes
The determination of our provision for income taxes and evaluating our tax positions requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various US federal and state, as well as foreign, jurisdictions. Our annual
effective tax rate is based on our income, the jurisdiction(s) in which the income is earned and subjected to taxation, the tax laws in those various jurisdictions which can be affected by tax law changes, increases or decreases in permanent differences between book and tax items, and accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances.
We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the position becomes uncertain based upon one of the following: (1) the tax position is not more likely than not to be sustained, (2) the tax position is more likely than not to be sustained, but for a lesser amount, or (3) the tax position is more likely than not to be sustained, but not in the financial period in which the tax position was originally taken. Reserves related to tax accruals and valuation allowances related to deferred tax assets can be impacted by changes in tax law in the relevant jurisdiction(s) and our future taxable income levels in the relevant jurisdiction(s) with respect to valuation allowances.
Allowance for Credit Losses
We estimate an allowance for credit losses related to accounts receivable for future expected credit losses by using relevant information such as historical information, current conditions, and reasonable and supportable forecasts. The allowance is measured on a pool basis when similar risk characteristics exist, and a loss-rate for each pool is determined using historical credit loss experience as the basis for the estimation of expected credit losses. Adjustments to historical loss information involves making informed judgments to reflect our expectations for differences in current conditions, as well as changes in forecasted macroeconomic conditions, such as changes in the unemployment rate or gross domestic product growth, when applicable. We also consider internal information on pool specific factors to inform our decision making. We typically observe a higher loss-rate experience with customers in the pools associated with our Corporate and Small Business segments, as compared to the pools associated with the Public segment. During the year ended December 31, 2020, we recognized an increase in the allowance to reflect the forecasted credit deterioration due to the COVID-19 pandemic, which considered geographic-specific factors, customer makeup and the overall size of our pools, as well as the impacts experienced to date and the impacts from the last significant economic downturn in 2008-2009. As the overall impact and duration of the COVID-19 pandemic remains uncertain, our estimates and assumptions may evolve as conditions change.
Recent Accounting Pronouncements
The information set forth in Note 2 (Recent Accounting Pronouncements) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures of Market Risks
Interest Rate Risk
Our market risks relate primarily to changes in interest rates. The interest rates on borrowings under our senior secured asset-based revolving credit facility, our senior secured term loan facility and the CDW UK term loan are floating and, therefore, are subject to fluctuations. In order to manage the risk associated with changes in interest rates on borrowings under our senior secured term loan facility, we have entered into interest rate caps to add stability to interest expense and to manage our exposure to interest rate fluctuations.
As of December 31, 2020, we have an interest rate cap agreement in effect with a notional amount of $1.4 billion. For additional information, see Note 9 (Financial Instruments) to the accompanying Consolidated Financial Statements.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Contractual Obligations" for information on cash flows, interest rates and maturity dates of our debt obligations.
Foreign Currency Risk
We transact business in foreign currencies other than the US dollar, primarily the British pound and the Canadian dollar, which exposes us to foreign currency exchange rate fluctuations. Revenue and expenses generated from our international operations are generally denominated in the local currencies of the corresponding countries. The functional currency of our international operating subsidiaries is the same as the corresponding local currency. Upon consolidation, as results of operations are translated, operating results may differ from expectations. The direct effect of foreign currency fluctuations on our results of operations has not been material as the majority of our results of operations are denominated in US dollars.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of CDW Corporation and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CDW Corporation and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
|
|
|
|
|
|
|
Revenue recognition
|
Description of the Matter
|
As described in Note 1 to the consolidated financial statements, the Company recognizes revenue upon transfer of control of promised products or services to customers. The Company applies judgment in determining whether it is the principal and reports revenue on a gross basis, or an agent and reports revenue on a net basis. The Company also sells some of its products and services as part of bundled contract arrangements containing multiple performance obligations.
Significant judgment may be required when determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together. For each distinct performance obligation, judgment is required to determine the relative standalone selling price to allocate the transaction price, such as using an expected cost plus margin approach.
Auditing the Company's contracts with customers was challenging given the significant audit effort required to analyze the Company's various products, services and contract arrangements. For example, certain customer contracts contain multiple parties and there can be subjective judgment in assessing the Company's role as principal or agent in the contract arrangement. For certain other customer contracts, there can be judgment in the identification of the distinct performance obligations along with the determination of the associated relative standalone selling prices.
|
How We Addressed the Matter in Our Audit
|
We obtained an understanding of the revenue process, evaluated the design and tested the operating effectiveness of the Company's internal controls over the relevant terms of the customer contracts, including the determination of principal versus agent, the identification of distinct performance obligations and the determination of the relative standalone selling price for separate performance obligations.
To test revenue recognition, our audit procedures included among others, examination of executed customer contracts for a sample of sales transactions, and evaluating the Company's determination of principal versus agent, identifying products and services in the contract and assessing separate distinct performance obligations. To test management's determination of relative standalone selling price for separate performance obligations, we performed audit procedures that included, among others, assessing the appropriateness of the methodology applied, testing the mathematical accuracy of the underlying data and calculations and inspecting the underlying data information on a sample basis.
|
|
|
|
/s/ Ernst & Young LLP
|
We have served as the Company's auditor since 2011.
|
Chicago, Illinois
|
February 26, 2021
|
CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
1,410.2
|
|
|
$
|
154.0
|
|
Accounts receivable, net of allowance for credit losses of $29.6 and $7.9, respectively
|
3,212.6
|
|
|
3,002.2
|
|
Merchandise inventory
|
760.0
|
|
|
611.2
|
|
Miscellaneous receivables
|
379.5
|
|
|
395.1
|
|
Prepaid expenses and other
|
191.2
|
|
|
171.6
|
|
Total current assets
|
5,953.5
|
|
|
4,334.1
|
|
Operating lease right-of-use assets
|
130.8
|
|
|
131.8
|
|
Property and equipment, net
|
175.5
|
|
|
363.1
|
|
Goodwill
|
2,595.9
|
|
|
2,553.0
|
|
Other intangible assets, net
|
445.1
|
|
|
594.1
|
|
Other assets
|
43.9
|
|
|
23.3
|
|
Total Assets
|
$
|
9,344.7
|
|
|
$
|
7,999.4
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable-trade
|
$
|
2,088.4
|
|
|
$
|
1,835.0
|
|
Accounts payable-inventory financing
|
524.6
|
|
|
429.9
|
|
Current maturities of long-term debt
|
70.9
|
|
|
34.1
|
|
Contract liabilities
|
243.7
|
|
|
252.2
|
|
Accrued expenses and other current liabilities:
|
|
|
|
Compensation
|
288.3
|
|
|
212.3
|
|
Advertising
|
153.4
|
|
|
147.9
|
|
Sales and income taxes
|
104.2
|
|
|
88.6
|
|
Other
|
424.8
|
|
|
491.4
|
|
Total current liabilities
|
3,898.3
|
|
|
3,491.4
|
|
Long-term liabilities:
|
|
|
|
Debt
|
3,856.3
|
|
|
3,283.2
|
|
Deferred income taxes
|
55.3
|
|
|
62.4
|
|
Operating lease liabilities
|
169.0
|
|
|
131.1
|
|
Other liabilities
|
68.7
|
|
|
71.0
|
|
Total long-term liabilities
|
4,149.3
|
|
|
3,547.7
|
|
Stockholders' equity:
|
|
|
|
Preferred stock, $0.01 par value, 100.0 shares authorized; no shares issued or outstanding for both periods
|
—
|
|
|
—
|
|
Common stock, $0.01 par value, 1,000.0 shares authorized; 141.9 and 143.0 shares outstanding, respectively
|
1.4
|
|
|
1.4
|
|
Paid-in capital
|
3,204.9
|
|
|
3,095.3
|
|
Accumulated deficit
|
(1,813.4)
|
|
|
(2,018.6)
|
|
Accumulated other comprehensive loss
|
(95.8)
|
|
|
(117.8)
|
|
Total stockholders' equity
|
1,297.1
|
|
|
960.3
|
|
Total Liabilities and Stockholders' Equity
|
$
|
9,344.7
|
|
|
$
|
7,999.4
|
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Net sales
|
$
|
18,467.5
|
|
|
$
|
18,032.4
|
|
|
$
|
16,240.5
|
|
Cost of sales
|
15,257.4
|
|
|
14,992.5
|
|
|
13,533.6
|
|
Gross profit
|
3,210.1
|
|
|
3,039.9
|
|
|
2,706.9
|
|
Selling and administrative expenses
|
2,030.9
|
|
|
1,906.3
|
|
|
1,719.6
|
|
Operating income
|
1,179.2
|
|
|
1,133.6
|
|
|
987.3
|
|
Interest expense, net
|
(154.9)
|
|
|
(159.4)
|
|
|
(148.6)
|
|
Other (expense) income, net
|
(22.0)
|
|
|
(24.5)
|
|
|
1.8
|
|
Income before income taxes
|
1,002.3
|
|
|
949.7
|
|
|
840.5
|
|
Income tax expense
|
(213.8)
|
|
|
(212.9)
|
|
|
(197.5)
|
|
Net income
|
$
|
788.5
|
|
|
$
|
736.8
|
|
|
$
|
643.0
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
Basic
|
$
|
5.53
|
|
|
$
|
5.08
|
|
|
$
|
4.26
|
|
Diluted
|
$
|
5.45
|
|
|
$
|
4.99
|
|
|
$
|
4.19
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
Basic
|
142.6
|
|
|
145.1
|
|
|
150.9
|
|
Diluted
|
144.8
|
|
|
147.8
|
|
|
153.6
|
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Net income
|
|
$
|
788.5
|
|
|
$
|
736.8
|
|
|
$
|
643.0
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Unrealized loss from hedge accounting, net of tax
|
|
(0.6)
|
|
|
(11.3)
|
|
|
(5.9)
|
|
Reclassification of hedge accounting loss to net income, net of tax
|
|
6.0
|
|
|
1.7
|
|
|
3.9
|
|
Foreign currency translation, net of tax
|
|
16.6
|
|
|
22.4
|
|
|
(32.7)
|
|
Other comprehensive income (loss)
|
|
22.0
|
|
|
12.8
|
|
|
(34.7)
|
|
Comprehensive income
|
|
$
|
810.5
|
|
|
$
|
749.6
|
|
|
$
|
608.3
|
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Accumulated
Other
Comprehensive Loss
|
|
Total
Stockholders' Equity
|
Balance as of December 31, 2017
|
|
153.1
|
|
|
$
|
1.5
|
|
|
0.1
|
|
|
$
|
—
|
|
|
$
|
2,911.6
|
|
|
$
|
(1,831.6)
|
|
|
$
|
(95.9)
|
|
|
$
|
985.6
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
643.0
|
|
|
—
|
|
|
643.0
|
|
Equity-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36.5
|
|
|
—
|
|
|
—
|
|
|
36.5
|
|
Stock option exercises
|
|
0.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28.6
|
|
|
—
|
|
|
—
|
|
|
28.6
|
|
Coworker Stock Purchase Plan
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.8
|
|
|
—
|
|
|
—
|
|
|
11.8
|
|
Repurchases of common stock
|
|
(6.3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(522.3)
|
|
|
—
|
|
|
(522.3)
|
|
Dividend payments ($0.925 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
(140.2)
|
|
|
—
|
|
|
(139.4)
|
|
Incentive compensation plan stock withheld for taxes
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
7.6
|
|
|
(41.5)
|
|
|
—
|
|
|
(33.9)
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32.7)
|
|
|
(32.7)
|
|
Unrealized loss from hedge accounting
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.9)
|
|
|
(5.9)
|
|
Reclassification of hedge accounting loss to net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.9
|
|
|
3.9
|
|
Balance as of December 31, 2018
|
|
147.7
|
|
|
$
|
1.5
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
2,996.9
|
|
|
$
|
(1,892.6)
|
|
|
$
|
(130.6)
|
|
|
$
|
975.2
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
736.8
|
|
|
—
|
|
|
736.8
|
|
Equity-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47.7
|
|
|
—
|
|
|
—
|
|
|
47.7
|
|
Stock option exercises
|
|
1.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34.9
|
|
|
—
|
|
|
—
|
|
|
34.9
|
|
Coworker Stock Purchase Plan
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14.9
|
|
|
—
|
|
|
—
|
|
|
14.9
|
|
Repurchases of common stock
|
|
(6.1)
|
|
|
(0.1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(657.1)
|
|
|
—
|
|
|
(657.2)
|
|
Dividend payments ($1.265 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.9
|
|
|
(184.3)
|
|
|
—
|
|
|
(183.4)
|
|
Incentive compensation plan stock withheld for taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21.4)
|
|
|
—
|
|
|
(21.4)
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22.4
|
|
|
22.4
|
|
Unrealized loss from hedge accounting
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11.3)
|
|
|
(11.3)
|
|
Reclassification of hedge accounting loss to net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
|
1.7
|
|
Balance as of December 31, 2019
|
|
143.0
|
|
|
$
|
1.4
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
3,095.3
|
|
|
$
|
(2,018.6)
|
|
|
$
|
(117.8)
|
|
|
$
|
960.3
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
788.5
|
|
|
—
|
|
|
788.5
|
|
Equity-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42.5
|
|
|
—
|
|
|
—
|
|
|
42.5
|
|
Stock option exercises
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49.2
|
|
|
—
|
|
|
—
|
|
|
49.2
|
|
Coworker Stock Purchase Plan
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16.8
|
|
|
—
|
|
|
—
|
|
|
16.8
|
|
Repurchases of common stock
|
|
(2.6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(340.6)
|
|
|
—
|
|
|
(340.6)
|
|
Dividend payments ($1.540 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
|
(220.7)
|
|
|
—
|
|
|
(219.6)
|
|
Incentive compensation plan stock withheld for taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22.5)
|
|
|
—
|
|
|
(22.5)
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16.6
|
|
|
16.6
|
|
Unrealized loss from hedge accounting
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.6)
|
|
|
(0.6)
|
|
Reclassification of hedge accounting loss to net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.0
|
|
|
6.0
|
|
Impact of adoption of Topic 326
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
0.5
|
|
Balance as of December 31, 2020
|
|
141.9
|
|
|
$
|
1.4
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
3,204.9
|
|
|
$
|
(1,813.4)
|
|
|
$
|
(95.8)
|
|
|
$
|
1,297.1
|
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
788.5
|
|
|
$
|
736.8
|
|
|
$
|
643.0
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
425.6
|
|
|
267.1
|
|
|
265.6
|
|
Equity-based compensation expense
|
42.5
|
|
|
48.5
|
|
|
40.7
|
|
Deferred income taxes
|
(20.2)
|
|
|
(87.9)
|
|
|
(56.1)
|
|
Provision for credit losses
|
30.9
|
|
|
0.8
|
|
|
0.9
|
|
Other
|
42.1
|
|
|
28.2
|
|
|
10.0
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(226.4)
|
|
|
(244.8)
|
|
|
(365.1)
|
|
Merchandise inventory
|
(71.4)
|
|
|
(153.0)
|
|
|
(46.8)
|
|
Other assets
|
18.6
|
|
|
(10.9)
|
|
|
25.2
|
|
Accounts payable-trade
|
253.7
|
|
|
194.1
|
|
|
271.2
|
|
Other liabilities
|
30.4
|
|
|
248.3
|
|
|
117.3
|
|
Net cash provided by operating activities
|
1,314.3
|
|
|
1,027.2
|
|
|
905.9
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
Capital expenditures
|
(158.0)
|
|
|
(236.3)
|
|
|
(86.1)
|
|
Acquisition of businesses, net of cash acquired
|
(43.0)
|
|
|
(95.1)
|
|
|
—
|
|
Net cash used in investing activities
|
(201.0)
|
|
|
(331.4)
|
|
|
(86.1)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from borrowings under revolving credit facilities
|
1,024.0
|
|
|
2,445.5
|
|
|
686.7
|
|
Repayments of borrowings under revolving credit facilities
|
(1,075.0)
|
|
|
(2,394.5)
|
|
|
(686.7)
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
1,300.0
|
|
|
600.0
|
|
|
—
|
|
Payments to extinguish long-term debt
|
(622.5)
|
|
|
(539.0)
|
|
|
—
|
|
Net change in accounts payable-inventory financing
|
93.0
|
|
|
(1.3)
|
|
|
(67.4)
|
|
Repurchases of common stock
|
(340.6)
|
|
|
(657.2)
|
|
|
(522.3)
|
|
Payment of incentive compensation plan withholding taxes
|
(22.5)
|
|
|
(21.4)
|
|
|
(33.9)
|
|
Dividend payments
|
(219.6)
|
|
|
(183.4)
|
|
|
(139.4)
|
|
Other
|
2.0
|
|
|
1.5
|
|
|
8.2
|
|
Net cash provided by (used in) financing activities
|
138.8
|
|
|
(749.8)
|
|
|
(754.8)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
4.1
|
|
|
2.2
|
|
|
(3.4)
|
|
Net increase (decrease) in cash and cash equivalents
|
1,256.2
|
|
|
(51.8)
|
|
|
61.6
|
|
Cash and cash equivalents – beginning of period
|
154.0
|
|
|
205.8
|
|
|
144.2
|
|
Cash and cash equivalents – end of period
|
$
|
1,410.2
|
|
|
$
|
154.0
|
|
|
$
|
205.8
|
|
Supplementary disclosure of cash flow information:
|
|
|
|
|
|
Interest paid
|
$
|
(139.4)
|
|
|
$
|
(154.2)
|
|
|
$
|
(148.8)
|
|
Income taxes paid, net
|
$
|
(245.6)
|
|
|
$
|
(272.2)
|
|
|
$
|
(261.2)
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
CDW Corporation ("Parent"), a Fortune 500 company and member of the S&P 500 Index, is a leading multi-brand provider of information technology ("IT") solutions to small, medium and large business, government, education and healthcare customers in the United States ("US"), the United Kingdom ("UK") and Canada. The Company’s broad array of offerings ranges from discrete hardware and software products to integrated IT solutions and services that include on-premise, hybrid and cloud capabilities across data center and networking, digital workspace, security and virtualization.
Throughout this report, the terms "the Company" and "CDW" refer to Parent and its 100% owned subsidiaries.
Parent has two 100% owned subsidiaries, CDW LLC and CDW Finance Corporation. CDW LLC is an Illinois limited liability company that, together with its 100% owned subsidiaries, holds all material assets and conducts all business activities and operations of the Company. CDW Finance Corporation is a Delaware corporation formed for the sole purpose of acting as co-issuer of certain debt obligations and does not hold any material assets or engage in any business activities or operations.
Basis of Presentation
The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP") and the rules and regulations of the US Securities and Exchange Commission ("SEC").
Reclassifications
Certain prior period amounts have been reclassified to conform with current period presentation.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Parent and its 100% owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances including management’s current assumptions with respect to implications of the novel coronavirus ("COVID-19") pandemic, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and outcomes could differ from those estimates.
Except as noted within Note 2 (Recent Accounting Pronouncements) for the adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("Topic 326"), there have been no changes to the Company's significant accounting policies and estimates during the year ended December 31, 2020.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents include deposits in banks and short-term (original maturities of three months or less at the time of purchase), highly liquid investments that are readily convertible to known amounts of cash and are so near maturity that there is insignificant risk of changes in value due to interest rate changes.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and typically do not bear interest. The Company estimates an allowance for credit losses related to accounts receivable for future expected credit losses by using relevant information such as historical information, current conditions, and reasonable and supportable forecasts. The allowance is measured on a pool basis when similar risk characteristics exist, and a loss-rate for each pool is determined using historical credit loss experience as the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current conditions as well as changes in forecasted macroeconomic conditions, such as changes in the unemployment rate or gross domestic product growth rate. The Company has typically observed a higher loss-rate experience with customers in pools associated with the Company's Corporate and Small Business segments, as compared to the pools associated with the Public segment.
Merchandise Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is determined using a weighted-average cost method. Price protection is recorded when earned as a reduction to the cost of inventory. The Company decreases the value of inventory for estimated obsolescence equal to the difference between the cost of inventory and the net realizable value, based upon an aging analysis of the inventory on hand, specifically known inventory-related risks and assumptions about future demand and market conditions.
Miscellaneous Receivables
Miscellaneous receivables primarily consist of amounts due from vendors. The Company receives incentives from vendors related to cooperative advertising, volume rebates, bid programs, price protection and other programs. These incentives generally relate to written vendor agreements with specified performance requirements and are recorded as adjustments to Cost of sales or Merchandise inventory, depending on the nature of the incentive.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. The Company calculates depreciation expense using the straight-line method over the estimated useful lives of the assets. For revenue generating assets, the Company calculates depreciation expense using the straight-line method to the estimated residual value over the estimated useful life of the assets. Property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset's carrying amount over its fair value. Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining lease term. Expenditures for major renewals and improvements that extend the useful life of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
Leases
The Company enters into operating lease contracts, as assessed at contract inception, primarily for real estate, data centers and equipment. On the lease commencement date, the Company records operating lease liabilities based on the present value of the future lease payments. In determining the present value of future lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date. For real estate and data center contracts, the Company accounts for the lease and non-lease components as a single lease component. For certain equipment leases, the Company applies a portfolio approach to account for the right-of-use asset and operating lease liability. In assessing the lease term, the Company includes options to renew only when it is reasonably certain
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
that it will be exercised; a determination which is at the sole discretion of the Company. For leases with an initial term of 12 months or less, the Company has elected to not record a right-of-use asset and lease liability. For equipment leases used in revenue generating activities, the Company records a right-of-use asset and lease liability for leases with a term of 12 months or less. The Company records lease expense on a straight-line basis over the lease term beginning on the commencement date.
Goodwill
The Company performs an evaluation of goodwill, utilizing either a qualitative or quantitative impairment test. A qualitative assessment is performed at least on an annual basis to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. The Company performs a quantitative impairment test for each reporting unit every three years, or more frequently if circumstances indicate a potential impairment. The annual test for impairment is conducted as of December 1. The Company's reporting units included in the assessment of potential goodwill impairment are the same as its operating segments. Goodwill is not amortized but is subject to periodic testing for impairment at the reporting unit level.
Under a qualitative assessment, the most recent quantitative assessment is used to determine if it is more likely than not that the reporting unit's goodwill is impaired. As part of this qualitative assessment, the Company assesses relevant events and circumstances including macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in share price and entity-specific events to determine if there is an indication of impairment.
Under a quantitative assessment, goodwill impairment is identified by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and an impairment charge is recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill. Fair value of a reporting unit is determined by using a weighted combination of an income approach (75%) and a market approach (25%), as this combination is considered the most indicative of the Company's fair value in an orderly transaction between market participants.
Under the income approach, the Company determines fair value based on estimated future cash flows of a reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn. The estimated future cash flows of each reporting unit are based on internally generated forecasts for the remainder of the respective reporting period and the next five years.
Under the market approach, the Company utilizes valuation multiples derived from publicly available information for guideline companies to provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. The valuation multiples are applied to the reporting units.
Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including Net sales growth rates, gross profit margins, operating margins, discount rates and future market conditions, among others. Any changes in the judgments, estimates or assumptions used could produce significantly different results.
Intangible Assets
Intangible assets with determinable lives are amortized on a straight-line basis over their respective estimated useful lives. The cost of computer software developed or obtained for internal use is capitalized and amortized on a straight-line basis over the estimated useful life of the software. Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset's carrying amount over its fair value. In addition, each quarter, the Company evaluates whether events and circumstances warrant a revision to the remaining estimated useful life of each of these intangible assets. If the Company were to determine that a change to the remaining estimated useful life of an intangible asset was necessary, then the remaining carrying amount of the intangible asset would be amortized prospectively over that revised remaining useful life.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Deferred Financing Costs
Deferred financing costs, such as underwriting, financial advisory, professional fees and other similar fees are capitalized and recognized in Interest expense, net over the estimated life of the related debt instrument using the effective interest method or straight-line method, as applicable. The Company classifies deferred financing costs as a direct deduction from the carrying value of the Long-term debt liability on the Consolidated Balance Sheets, except for deferred financing costs associated with revolving credit facilities which are presented as an asset, within Other assets on the Consolidated Balance Sheets.
Derivative Instruments
The Company has interest rate cap agreements for the purpose of hedging its exposure to fluctuations in interest rates. The interest rate cap agreements are designated as cash flow hedges of interest rate risk and recorded at fair value in Other assets on the Consolidated Balance Sheets. Changes in fair value of the derivative instruments, along with the change in the fair value of the hedged item, are reported as a component of Accumulated other comprehensive loss until reclassified to Interest expense, net in the same period the hedge transaction affects earnings.
Fair Value Measurements
Fair value is defined under US GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established for valuation inputs to prioritize the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 – observable inputs such as quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.
Revenue Recognition
The Company is a primary distribution channel for a large group of vendors and suppliers, including original equipment manufacturers ("OEMs"), software publishers and wholesale distributors.
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and collectability of consideration is probable. The Company evaluates the following indicators amongst others when determining whether it is acting as a principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.
The Company recognizes revenue once control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer: (i) the Company has a right to payment for the product or service, (ii) the customer has legal title to the product, (iii) the Company has transferred physical possession of the product to the customer, (iv) the customer has the significant risk and rewards of ownership of the product and (v) the customer has accepted the product. The Company's products can be delivered to customers in a variety of ways, including (i) as physical product shipped from the Company's warehouse, (ii) via drop-shipment by the vendor or
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
supplier or (iii) via electronic delivery of keys for software licenses. The Company's shipping terms typically allow for the Company to recognize revenue when the product reaches the customer's location.
The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouses. The Company is the principal in the transaction and recognizes revenue for drop-shipment arrangements on a gross basis.
Revenue Recognition for Hardware
Revenues from sales of hardware products are recognized on a gross basis as the Company is acting as a principal in these transactions, with the selling price to the customer recorded as Net sales and the acquisition cost of the product recorded as Cost of sales. The Company recognizes revenue from these transactions when control has passed to the customer, which is usually upon delivery of the product to the customer.
In some instances, the customer agrees to buy the product from the Company but requests delivery at a later date, commonly known as bill-and-hold arrangements. For these transactions, the Company deems that control passes to the customer when the product is ready for delivery. The Company views products ready for delivery when the customer has a signed agreement, significant risk and rewards for the products, the ability to direct the assets, the products have been set aside specifically for the customer, cannot be redirected to another customer and for customer orders that include configuration services, when such services have been completed.
The Company's vendor partners warrant most of the products the Company sells. These manufacturer warranties are assurance-type warranties and are not considered separate performance obligations. The warranties are not sold separately and only provide assurance that products will conform with the manufacturer's specifications. In some transactions, a third party will provide the customer with an extended warranty. These extended warranties are sold separately and provide the customer with a service in addition to assurance that the product will function as expected. The Company considers these warranties to be separate performance obligations from the underlying product. For extended warranties, the Company is arranging for those services to be provided by the third party and therefore is acting as an agent in the transaction and records revenue on a net basis at the point of sale.
The Company sells cloud computing solutions which include Infrastructure as a Service ("IaaS"). IaaS solutions utilize third-party partners to enable customers to access data center functionality in a cloud-based solution, including storage, computing and networking. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue as it invoices the customer for its monthly usage on a net basis.
Revenue Recognition for Software
Revenues from most software license sales are recognized as a single performance obligation on a gross basis as the Company is acting as a principal in these transactions at the point the software license is delivered to the customer. Generally, software licenses are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect. The Company evaluates whether the software assurance is a separate performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core functionality of the software itself. This involves considering if the software provides its original intended functionality to the customer without the updates, if the customer would ascribe a higher value to the upgrades versus the up-front deliverable, if the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and if the customer chooses to not delay or always install upgrades. If the Company determines that the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software license, the software license and the accompanying third-party delivered software assurance are recognized as a single performance obligation. The value of the product is primarily the accompanying support delivered by a third party and therefore the Company is acting as an agent in these transactions and recognizes them on a net basis at the point the associated software license is delivered to the customer. For software licenses where the accompanying third-party delivered software assurance is not critical or essential to the core functionality, the software assurance is recognized as a separate performance obligation, with the associated revenue recognized on a net basis at the point the related software license is delivered to the customer. For additional information regarding the accounting for bundled arrangements, see "Revenue Recognition for Bundled Arrangements" below.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
The Company sells cloud computing solutions which include Software as a Service ("SaaS"). SaaS solutions utilize third-party partners to offer the Company's customers access to software in the cloud that enhances office productivity, provides security or assists in collaboration. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue as it invoices the customer for its monthly usage on a net basis.
The Company's customers are offered the opportunity by certain of its vendors to purchase software licenses and software assurance under enterprise agreements ("EAs"). For most EA transactions, the Company's obligation to the customer is that of a distributor or sales agent of the services, where all obligations for providing the services to customers are passed to the Company's vendors. The Company's performance obligations are satisfied at the time of the sale. In other EA transactions, the Company is responsible for fulfilling the promised services to the customer and providing remedy or refund for work if the customer is not satisfied with the delivered services, has inventory risk in the arrangement and has full control to set the price for the customer. With most EAs, the Company's vendors will transfer the license and invoice the customer directly, paying resellers an agency fee or commission on these sales. The Company records these fees as a component of Net sales as earned and there is no corresponding Cost of sales amount.
Revenue Recognition for Services
The Company provides professional services, which include project managers and consultants recommending, designing and implementing IT solutions. Revenue from professional services is recognized either on a time and materials basis or proportionally as costs are incurred for fixed fee project work. Revenue is recognized on a gross basis each month as work is performed and the Company transfers those services.
Revenues from the sale of data center services, such as managed and remote managed services, server co-location, internet connectivity and data backup and storage provided by the Company, are recognized over the period the service is provided. Most hosting and managed service obligations are based on the quantity and pricing parameters established in the agreement. As the customer receives the benefit of the service each month, the Company recognizes the respective revenue on a gross basis as the Company is acting as a principal in the transaction. Additionally, the Company's managed services team provides project support to customers that are billed on a fixed fee basis. The Company is acting as the principal in the transaction and recognizes revenue on a gross basis based on the total number of hours incurred for the period over the total expected hours for the project. Total expected hours to complete the project is updated for each period and best represents the transfer of control of the service to the customer.
Revenue Recognition for Bundled Arrangements
The Company also sells some of its products and services as part of bundled contract arrangements containing multiple deliverables, which may include a combination of products and services. For each deliverable that represents a distinct performance obligation, total arrangement consideration is allocated based upon the standalone selling prices of each performance obligation.
Sales In-Transit
The Company performs an analysis of the estimated number of days of sales in-transit to customers at the end of each reporting period based on a weighted-average analysis of commercial delivery terms that include drop-shipment arrangements. This analysis is the basis upon which the Company estimates the amount of Net sales in-transit at the end of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment.
Freight Costs
The Company records freight billed to its customers as Net sales and the related freight costs as Cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, the Company records the freight costs as Cost of sales. The Company's typical shipping terms result in shipping being performed before the customer obtains control of the product. The Company considers shipping to be a fulfillment activity and not a separate performance obligation.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Other
The nature of the Company's contracts give rise to variable consideration in the form of volume rebates and sales returns and allowances, which are estimated at contract inception. The Company estimates variable consideration at the most likely amount to which it is expected to be entitled. This estimated amount is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of the Company's anticipated performance and all information that is reasonably available. At the time of sale, the Company records a liability for estimated sales returns and allowances and an associated right of return asset. The Company also records a provision for volume rebates based on the evaluation of contract terms and historical experience.
The Company excludes amounts collected on behalf of third-parties, such as sales taxes, when determining the transaction price.
When a contract results in revenue being recognized in excess of the amount the Company has the right to invoice to the customer, a contract asset is recorded on the Consolidated Balance Sheets. Contract assets are comprised primarily of professional services with fixed fee arrangements.
Contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services. Contract liabilities are comprised primarily of professional services with fixed fee arrangements, bill-and-hold transactions where control has not passed to the customer and certain governmental contracts.
Trade accounts receivable are recorded at the point of sale (or in accordance with the Statement of Work for services) for the total amount payable by the customer to the Company for sale of goods. Taxes to be collected from the customer as part of the sale are included in Accounts receivable.
Any incremental direct costs of obtaining a contract, primarily sales commissions, are deferred on the Consolidated Balance Sheets and amortized over the period of contract performance.
The Company typically does not enter into long-term contracts. The Company has elected to use the practical expedient for its performance obligations table to include only those contracts that are longer than 12 months at the time of contract inception and those contracts that are non-cancelable. Additionally, for certain governmental contracts where there are annual renewals, the Company has excluded these contracts since there is only a one-year legal obligation. Typically, the only contracts that are longer than 12 months in duration are related to the Company's managed services business.
The Company requests payments for its products and services at the point of sale. The Company generally does not enter into any long-term financing arrangements or payment plans with customers or contracts with customers that have non-cash consideration.
Sales Taxes
Sales tax amounts collected from customers for remittance to governmental authorities are presented on a net basis in the Consolidated Statements of Operations.
Advertising
Advertising costs are generally charged to expense in the period incurred and are recorded in Selling and administrative expenses in the Consolidated Statements of Operations. Cooperative reimbursements from vendors are recorded in the period the related advertising expenditure is incurred. The Company classifies vendor consideration as a reduction to Cost of sales. During the years ended December 31, 2020, 2019 and 2018, the Company had advertising costs of $191 million, $193 million and $183 million, respectively.
Equity-Based Compensation
The Company measures all equity-based payments using a fair-value-based method and records compensation expense over the requisite service period using the straight-line method in its Consolidated Financial Statements. The expense calculation includes estimated forfeiture rates, which have been developed based upon historical experience.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Interest Expense
Interest expense is recognized in the period incurred at the applicable interest rate in effect.
Foreign Currency Translation
The Company's functional currency is the US dollar. The functional currency of the Company's international operating subsidiaries is generally the same as the corresponding local currency. Assets and liabilities of the international operating subsidiaries are translated at the spot rate in effect at the applicable reporting date. Revenues and expenses of the international operating subsidiaries are translated at the average exchange rates in effect during the applicable period. The resulting foreign currency translation adjustment is recorded as Accumulated other comprehensive loss, which is reflected as a separate component of Stockholders' equity.
Income Taxes
Deferred income taxes are provided to reflect the differences between the tax bases of assets and liabilities and their reported amounts in the Consolidated Financial Statements using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company performs an evaluation of the realizability of deferred tax assets on a quarterly basis. This evaluation requires management to make use of estimates and assumptions and considers all positive and negative evidence and factors, such as the scheduled reversal of temporary differences, the mix of earnings in the jurisdictions in which the Company operates, and prudent and feasible tax planning strategies.
The Company accounts for unrecognized tax benefits based upon its assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company reports a liability for unrecognized tax benefits resulting from unrecognized tax benefits taken or expected to be taken in a tax return and recognizes interest and penalties, if any, related to its unrecognized tax benefits in income tax expense.
2. Recent Accounting Pronouncements
Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("Topic 740"). This ASU simplifies various areas related to the accounting for income taxes by removing certain exceptions to the general principles and by amending the existing guidance in order to improve consistency in application. This ASU is effective for the Company beginning in the first quarter of 2021 and allows for early adoption.
On January 1, 2021, the Company adopted the updated Topic 740 in accordance with the applicable transition methods. Among the various updates, the Company adopted the accounting for ownership changes when transitioning from equity method to consolidation on a modified retrospective basis, which resulted in a $19 million adjustment to retained earnings as of January 1, 2021 for the cumulative effect of derecognizing the deferred tax liability related to the UK acquisition. For additional information regarding the deferred tax liability previously recognized for the UK acquisition, see Note 11 (Income Taxes). The remaining components of the updated Topic 740 did not have an impact to the Company’s Consolidated Financial Statements.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Topic 848 temporarily provides optional expedients and exceptions for applying existing guidance to contract modifications, hedging relationships and other transactions that are expected to be affected by reference rate reform. Topic 848 was effective upon issuance and will remain in effect for all contract modifications and hedging relationships entered into through December 31, 2022. The adoption of Topic 848, along with the related expedients, did not have an impact to the Company’s Consolidated Financial Statements.
Measurement of Credit Losses on Financial Instruments
On January 1, 2020, the Company adopted and applied Topic 326 using the modified retrospective approach. Topic 326 introduced a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables, which is reflected in the Company’s policies. The adoption of Topic
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
326, as well as the adjustment to retained earnings for the cumulative effect, was not significant to the Company's Consolidated Financial Statements.
3. Acquisition
On February 1, 2019, the Company completed the acquisition of all issued and outstanding shares of Scalar Decisions Inc. ("Scalar"), a leading technology solutions provider in Canada, for a total final purchase price of $88 million, of which $13 million is deferred to satisfy potential indemnity obligations and is expected to be paid in the first quarter of 2021. The purchase price allocation is final.
4. Allowance for Credit Losses
The changes in the allowance for credit losses related to accounts receivable were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
Balance as of December 31, 2019
|
|
$
|
7.9
|
|
Provision for credit losses
|
|
30.9
|
|
Write-offs charged against the allowance for credit losses
|
|
(10.8)
|
|
Other
|
|
1.6
|
|
Balance as of December 31, 2020
|
|
$
|
29.6
|
|
During the year ended December 31, 2020, the Company recognized a provision for credit losses of $31 million to reflect the forecasted credit deterioration primarily due to the COVID-19 pandemic, which considered geographic-specific factors, customer makeup and the overall size of the Company's pools, as well as the impacts experienced to date and the impacts from the last significant economic downturn in 2008-2009. Due to the higher inherent risk in the pools associated with the Company's Corporate and Small Business segments, the overall size of certain pools within the Public segment, and the increased risk with customers based from the UK pool, the majority of the allowance relates to these pools. As the overall impact and duration of the COVID-19 pandemic remains uncertain, the Company's estimates and assumptions may evolve as conditions change.
5. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Useful Lives (Years)
|
|
2020
|
|
2019
|
Building and leasehold improvements
|
5 - 25
|
|
$
|
126.8
|
|
|
$
|
134.2
|
|
Computer and data processing equipment
|
3 - 5
|
|
126.5
|
|
|
132.0
|
|
Construction in progress
|
-*
|
|
50.8
|
|
|
23.3
|
|
Machinery and equipment
|
5 - 10
|
|
43.3
|
|
|
45.4
|
|
Land
|
-*
|
|
27.7
|
|
|
27.7
|
|
Computer software
|
3 - 5
|
|
22.9
|
|
|
25.1
|
|
Furniture and fixtures
|
5 - 10
|
|
21.2
|
|
|
20.5
|
|
Revenue generating assets
|
Up to 1
|
|
—
|
|
|
212.0
|
|
|
|
|
|
|
|
Property and equipment, gross
|
|
|
419.2
|
|
|
620.2
|
|
Less: accumulated depreciation
|
|
|
(243.7)
|
|
|
(257.1)
|
|
Property and equipment, net
|
|
|
$
|
175.5
|
|
|
$
|
363.1
|
|
*Asset is not depreciated.
During 2019, the Company recorded additions of $212 million to revenue generating assets related to the delivery of a mobility solution, which was delivered throughout 2020.
During 2020, 2019 and 2018, the Company recorded disposals of $54 million, $3 million and $25 million, respectively, to remove Property and equipment that were no longer in use.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Depreciation expense for the years ended December 31, 2020, 2019, and 2018 was $213 million, $41 million and $42 million, respectively. During 2020, the increased depreciation expense was primarily due to the delivery of a mobility solution.
6. Goodwill and Other Intangible Assets
Goodwill
The changes in goodwill by reportable segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
Small Business
|
|
Public
|
|
Other(1)
|
|
Consolidated
|
Balances as of December 31, 2018(2)
|
|
$
|
1,074.1
|
|
|
$
|
185.9
|
|
|
$
|
929.6
|
|
|
$
|
273.2
|
|
|
$
|
2,462.8
|
|
Scalar acquisition(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62.0
|
|
|
62.0
|
|
Aptris, Inc. acquisition(4)
|
|
16.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16.5
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.7
|
|
|
11.7
|
|
Balances as of December 31, 2019(2)
|
|
1,090.6
|
|
|
185.9
|
|
|
929.6
|
|
|
346.9
|
|
|
2,553.0
|
|
IGNW, Inc. acquisition(5)
|
|
33.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33.0
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.9
|
|
|
9.9
|
|
Balances as of December 31, 2020(2)
|
|
$
|
1,123.6
|
|
|
$
|
185.9
|
|
|
$
|
929.6
|
|
|
$
|
356.8
|
|
|
$
|
2,595.9
|
|
(1)Other is comprised of CDW UK and CDW Canada reporting units.
(2)Goodwill is net of accumulated impairment losses of $1,571 million, $354 million and $28 million related to the Corporate, Public and Other segments, respectively.
(3)For additional information regarding the addition to goodwill resulting from the Company's acquisition, see Note 3 (Acquisition).
(4)The Company acquired Aptris, Inc. on October 1, 2019.
(5)The Company acquired IGNW, Inc. on July 1, 2020.
December 1, 2020 and 2019 Impairment Analysis
The Company completed its annual impairment analysis as of December 1, 2020 and 2019. For all reporting units, the Company performed a quantitative analysis. Based on the results of the quantitative analysis the Company determined that the fair values of Corporate, Small Business, Public, CDW UK, and CDW Canada reporting units substantially exceeded their carrying values and no impairment existed.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Other Intangible Assets
A summary of intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Useful Lives (Years)
|
|
Gross Carrying Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Amount
|
Customer relationships and contracts
|
|
3 - 14
|
|
$
|
2,131.5
|
|
|
$
|
(1,927.9)
|
|
|
$
|
203.6
|
|
Trade name
|
|
generally 20
|
|
422.8
|
|
|
(280.1)
|
|
|
142.7
|
|
Internally developed software
|
|
3 - 5
|
|
280.6
|
|
|
(186.0)
|
|
|
94.6
|
|
Other
|
|
1 - 10
|
|
9.6
|
|
|
(5.4)
|
|
|
4.2
|
|
Total
|
|
|
|
$
|
2,844.5
|
|
|
$
|
(2,399.4)
|
|
|
$
|
445.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Customer relationships and contracts
|
|
3 - 14
|
|
$
|
2,111.2
|
|
|
$
|
(1,786.4)
|
|
|
$
|
324.8
|
|
Trade name
|
|
generally 20
|
|
422.8
|
|
|
(259.0)
|
|
|
163.8
|
|
Internally developed software
|
|
3 - 5
|
|
263.5
|
|
|
(160.0)
|
|
|
103.5
|
|
Other
|
|
1 - 10
|
|
5.5
|
|
|
(3.5)
|
|
|
2.0
|
|
Total
|
|
|
|
$
|
2,803.0
|
|
|
$
|
(2,208.9)
|
|
|
$
|
594.1
|
|
During the years ended December 31, 2020, 2019 and 2018, the Company recorded disposals of $25 million, $11 million and $26 million, respectively, to remove fully amortized intangible assets that were no longer in use.
During the years ended December 31, 2020, 2019 and 2018, the Company recorded amortization expense related to intangible assets of $212 million, $219 million and $223 million, respectively.
Estimated future amortization expense related to intangible assets is as follows:
|
|
|
|
|
|
|
|
|
Years ending December 31,
|
|
Estimated Future Amortization Expense
|
2021
|
|
$
|
126.4
|
|
2022
|
|
77.1
|
|
2023
|
|
57.5
|
|
2024
|
|
43.0
|
|
2025
|
|
42.9
|
|
Thereafter
|
|
98.2
|
|
Total future amortization expense
|
|
$
|
445.1
|
|
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
7. Inventory Financing Agreements
The Company has entered into agreements with certain financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions, as described below. These amounts are classified separately as Accounts payable-inventory financing on the Consolidated Balance Sheets. The Company does not incur any interest expense associated with these agreements as balances are paid when they are due.
Amounts included in accounts payable-inventory financing are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Revolving Loan inventory financing agreement(1)
|
|
$
|
470.1
|
|
|
$
|
379.1
|
|
Other inventory financing agreements
|
|
54.5
|
|
|
50.8
|
|
Accounts payable-inventory financing
|
|
$
|
524.6
|
|
|
$
|
429.9
|
|
(1)The senior secured asset-based revolving credit facility includes an inventory floorplan sub-facility that enables the Company to maintain an inventory financing agreement with a financial intermediary to facilitate the purchase of inventory from certain vendors on more favorable terms than offered directly by the vendors.
8. Contract Liabilities and Remaining Performance Obligations
The Company's contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services. The Company's contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. As of December 31, 2020 and December 31, 2019, the contract liability balance was $244 million and $252 million, respectively. For the years ended December 31, 2020, 2019 and 2018, the Company recognized revenue of $203 million, $136 million, and $123 million, respectively, related to its contract liabilities.
A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For additional information regarding the Company's performance obligations, see Note 1 (Description of Business and Summary of Significant Accounting Policies). The following table represents the total transaction price for the remaining performance obligations as of December 31, 2020 related to non-cancelable contracts longer than 12 months in duration that is expected to be recognized over future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 Year
|
|
Years 1-2
|
|
Years 2-3
|
|
Thereafter
|
Remaining performance obligations
|
|
$
|
38.2
|
|
|
$
|
24.9
|
|
|
$
|
8.5
|
|
|
$
|
0.3
|
|
9. Financial Instruments
The Company's indebtedness creates interest rate risk on its variable-rate debt. The Company uses derivative financial instruments to manage its exposure to interest rate risk. The Company does not hold or issue derivative financial instruments for trading or speculative purposes.
The Company has interest rate cap agreements that entitle it to payments from the counterparty of the amount, if any, by which three-month London Interbank Offered Rate ("LIBOR") exceeds the strike rates of the caps during the agreement period in exchange for an upfront premium. During 2020, the Company did not enter into new interest rate cap agreements.
As of December 31, 2020 and December 31, 2019, the Company had interest rate cap agreements with a fair value of less than $1 million which were classified within Other assets on the Consolidated Balance Sheets. The total notional value of the interest rate cap agreements was $1.4 billion and $2.8 billion as of December 31, 2020 and December 31, 2019, respectively, of which $1.4 billion matured at December 31, 2020 and $1.4 billion will mature at December 31, 2022.
The fair value of the Company's interest rate cap agreements is classified as Level 2 in the fair value hierarchy. The valuation of the interest rate cap agreements is derived by using a discounted cash flow analysis on the expected cash receipts that would occur if variable interest rates rise above the strike rates of the caps. This analysis reflects the contractual terms of the interest rate cap agreements, including the period to maturity, and uses observable market-
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
based inputs, including LIBOR curves and implied volatilities. The Company also incorporates insignificant credit valuation adjustments to appropriately reflect the respective counterparty's nonperformance risk in the fair value measurements. The counterparty credit spreads are based on publicly available credit information obtained from a third-party credit data provider. For additional information, see Note 10 (Long-Term Debt).
The interest rate cap agreements are designated as cash flow hedges. The changes in the fair value of derivatives that qualify as cash flow hedges are recorded in Accumulated other comprehensive loss ("AOCL") and are subsequently reclassified into Interest expense in the period when the hedged forecasted transaction affects earnings. The following tables provide the activity in AOCL, net of tax, for the years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Change in fair value recorded to AOCL
|
|
$
|
(0.6)
|
|
|
$
|
(11.3)
|
|
|
$
|
(5.9)
|
|
Reclassification from AOCL to Interest expense, net
|
|
$
|
6.0
|
|
|
$
|
1.7
|
|
|
$
|
3.9
|
|
The Company expects to reclassify $3 million from Accumulated other comprehensive loss into Interest expense, net during the next 12 months.
10. Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
As of December 31, 2019
|
|
|
Maturity Date
|
|
Interest Rate
|
|
Amount
|
|
Interest Rate
|
|
Amount
|
Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
CDW UK revolving credit facility(1)
|
|
July 2021
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
Senior secured asset-based revolving credit facility
|
|
March 2022
|
|
—
|
%
|
|
—
|
|
|
5.000
|
%
|
|
51.0
|
|
Total credit facilities
|
|
|
|
|
|
—
|
|
|
|
|
51.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans
|
|
|
|
|
|
|
|
|
|
|
CDW UK term loan(1)
|
|
August 2021
|
|
1.445
|
%
|
|
56.0
|
|
|
2.190
|
%
|
|
61.0
|
|
Senior secured term loan facility
|
|
October 2026
|
|
1.900
|
%
|
|
1,423.4
|
|
|
3.550
|
%
|
|
1,438.3
|
|
Total term loans
|
|
|
|
|
|
1,479.4
|
|
|
|
|
1,499.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Senior Notes
|
|
|
|
|
|
|
|
|
|
|
Senior notes due 2024
|
|
December 2024
|
|
5.500
|
%
|
|
575.0
|
|
|
5.500
|
%
|
|
575.0
|
|
Senior notes due 2025
|
|
May 2025
|
|
4.125
|
%
|
|
600.0
|
|
|
—
|
%
|
|
—
|
|
Senior notes due 2025
|
|
September 2025
|
|
—
|
%
|
|
—
|
|
|
5.000
|
%
|
|
600.0
|
|
Senior notes due 2028
|
|
April 2028
|
|
4.250
|
%
|
|
600.0
|
|
|
4.250
|
%
|
|
600.0
|
|
Senior notes due 2029
|
|
February 2029
|
|
3.250
|
%
|
|
700.0
|
|
|
—
|
%
|
|
—
|
|
Total unsecured senior notes
|
|
|
|
|
|
2,475.0
|
|
|
|
|
1,775.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term obligations
|
|
|
|
|
|
—
|
|
|
|
|
12.6
|
|
Unamortized deferred financing fees
|
|
|
|
|
|
(27.2)
|
|
|
|
|
(20.6)
|
|
Current maturities of long-term debt
|
|
|
|
|
|
(70.9)
|
|
|
|
|
(34.1)
|
|
Total long-term debt
|
|
|
|
|
|
$
|
3,856.3
|
|
|
|
|
$
|
3,283.2
|
|
(1)British pound-denominated debt facilities.
As of December 31, 2020, the Company is in compliance with the covenants under the various credit agreements and indentures.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Credit Facilities
The Company has a variable rate CDW UK revolving credit facility that is denominated in British pounds. As of December 31, 2020, the Company could have borrowed up to an additional £50 million ($68 million) under the CDW UK revolving credit facility.
The Company also has a variable rate senior secured asset-based revolving credit facility (the "Revolving Loan") that is denominated in US dollars. The Revolving Loan is used by the Company for borrowings, issuances of letters of credit and floorplan financing. As of December 31, 2020, the Revolving Loan has less than $1 million of undrawn letters of credit, $459 million reserved for the floorplan sub-facility and a borrowing base of $2.2 billion, which is based on the amount of eligible inventory and accounts receivable balances as of November 30, 2020. As of December 31, 2020, the Company could have borrowed up to an additional $1.0 billion under the Revolving Loan.
The Revolving Loan is collateralized by a first priority interest in inventory (excluding inventory to the extent collateralized under the inventory financing arrangements as described in Note 7 (Inventory Financing Agreements)), deposits, and accounts receivable, and by a second priority interest in substantially all other US assets.
Term Loans
The CDW UK term loan has a variable interest rate with the remaining principal amount due at the maturity date. The CDW UK term loan agreement imposes restrictions on CDW UK's ability to transfer funds to the Company through the payment of dividends, repayment of intercompany loans, advances or subordinated debt that require, among other things, the maintenance of a minimum net leverage ratio. As of December 31, 2020, the amount of restricted payment capacity under the CDW UK term loan was £159 million ($218 million).
The senior secured term loan facility (the "Term Loan") has a variable interest rate, which has effectively been capped through the use of interest rate caps (see Note 9 (Financial Instruments)). The interest rate disclosed in the table above represents the variable interest rates in effect for December 31, 2020 and 2019, respectively. The Company is required to pay quarterly principal installments of $4 million with the remaining principal amount due at the maturity date. As of December 31, 2020, the amount of CDW's restricted payment capacity under the Term Loan was $2.2 billion.
The Term Loan is collateralized by a second priority interest in substantially all inventory (excluding inventory to the extent collateralized under the inventory financing arrangements as described in Note 7 (Inventory Financing Agreements)), deposits and accounts receivable, and by a first priority interest in substantially all other US assets.
Unsecured Senior Notes
The senior notes have a fixed interest rate, which is paid semi-annually.
Debt Issuance and Extinguishments
On April 21, 2020, the Company completed the issuance of $600 million aggregate principal amount of 4.125% Senior Notes due 2025 at par ("2025 Senior Notes"). The 2025 Senior Notes will mature on May 1, 2025 and bear interest of 4.125% per annum, payable semi-annually on May 1 and November 1 of each year, which had payments commence November 1, 2020.
On August 13, 2020, the Company completed the issuance of $700 million aggregate principal amount of 3.25% Senior Notes due 2029 at par ("2029 Senior Notes"). The 2029 Senior Notes will mature on February 15, 2029 and bear interest of 3.25% per annum, payable semi-annually on February 15 and August 15 of each year, which had payments commence February 15, 2021. The net proceeds from the issuance were primarily used to redeem all of the remaining $600 million aggregate principal amount of the 5.000% Senior Notes due September 2025 at a redemption price of 103.75% of the principal amount redeemed, plus accrued and unpaid interest to the date of redemption, to pay fees and expenses related to the issuance and redemption, and for general corporate purposes.
On September 26, 2019, the Company completed the issuance of $600 million aggregate principal amount of 4.25% Senior Notes due 2028 ("2028 Senior Notes") at par. The 2028 Senior Notes will mature on April 1, 2028 and bear interest at a rate of 4.25% per annum, payable semi-annually on April 1 and October 1 of each year, which had payments commence on April 1, 2020. The net proceeds from the issuance of the 2028 Senior Notes were primarily used to redeem all of the remaining $525 million aggregate principal amount of the 5.00% Senior Notes due 2023 at a redemption price of 102.5% of the principal amount redeemed, plus accrued and unpaid interest to the date of
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
redemption, and to pay fees and expenses related to the issuance and redemption. The redemption date was October 12, 2019. On the same date, the indenture governing the Senior Notes due 2023 was satisfied and discharged.
Total Debt Maturities
A summary of total debt maturities is as follows:
|
|
|
|
|
|
|
|
|
Years ending December 31,
|
|
Debt Maturities
|
2021
|
|
$
|
70.9
|
|
2022
|
|
15.0
|
|
2023
|
|
14.9
|
|
2024
|
|
589.9
|
|
2025
|
|
614.9
|
|
Thereafter
|
|
2,648.8
|
|
Total debt maturities
|
|
$
|
3,954.4
|
|
Fair Value
The fair values of the Senior Notes were estimated using quoted market prices for identical liabilities that are traded in over-the-counter secondary markets that are not considered active. The fair value of the Term Loan was estimated using dealer quotes for identical liabilities in markets that are not considered active. The Senior Notes, Term Loan and CDW UK term loan are classified as Level 2 within the fair value hierarchy. The carrying value of the Revolving Loan and CDW UK revolving credit facility approximate fair value if there are outstanding borrowings. The approximate fair values and related carrying values of the Company's long-term debt, including current maturities and excluding unamortized discount and unamortized deferred financing costs, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Fair value
|
|
$
|
4,077.9
|
|
|
$
|
3,447.5
|
|
Carrying value
|
|
3,954.4
|
|
|
3,337.9
|
|
11. Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted into law. The primary impact to the Company’s financial statements as a result of the CARES Act was the deferral of US corporate income tax payments from the second quarter of 2020 to July 2020, as well as the deferral of employer related payroll tax payments from the second, third and fourth quarters of 2020 with 50% to be paid in the fourth quarter of 2021 and the remaining 50% to be paid in the fourth quarter of 2022.
Income before income taxes was taxed under the following jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Domestic
|
|
$
|
934.3
|
|
|
$
|
854.1
|
|
|
$
|
762.3
|
|
Foreign
|
|
68.0
|
|
|
95.6
|
|
|
78.2
|
|
Total
|
|
$
|
1,002.3
|
|
|
$
|
949.7
|
|
|
$
|
840.5
|
|
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Components of Income tax expense (benefit) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
166.5
|
|
|
$
|
224.7
|
|
|
$
|
192.6
|
|
State
|
|
49.2
|
|
|
56.1
|
|
|
43.3
|
|
Foreign
|
|
18.3
|
|
|
20.0
|
|
|
17.7
|
|
Total current
|
|
234.0
|
|
|
300.8
|
|
|
253.6
|
|
Deferred:
|
|
|
|
|
|
|
Domestic
|
|
(18.8)
|
|
|
(83.0)
|
|
|
(52.7)
|
|
Foreign
|
|
(1.4)
|
|
|
(4.9)
|
|
|
(3.4)
|
|
Total deferred
|
|
(20.2)
|
|
|
(87.9)
|
|
|
(56.1)
|
|
Income tax expense
|
|
$
|
213.8
|
|
|
$
|
212.9
|
|
|
$
|
197.5
|
|
The reconciliation between the statutory tax rate expressed as a percentage of income before income taxes and the effective tax rate was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Statutory federal income tax rate
|
|
$
|
210.5
|
|
|
21.0
|
%
|
|
$
|
199.4
|
|
|
21.0
|
%
|
|
$
|
176.5
|
|
|
21.0
|
%
|
State taxes, net of federal effect
|
|
36.0
|
|
|
3.6
|
|
|
35.4
|
|
|
3.7
|
|
|
31.1
|
|
|
3.7
|
|
Excess tax benefit of equity awards
|
|
(28.8)
|
|
|
(2.9)
|
|
|
(26.8)
|
|
|
(2.8)
|
|
|
(19.7)
|
|
|
(2.3)
|
|
Effect of rates different than statutory
|
|
(0.8)
|
|
|
(0.1)
|
|
|
0.8
|
|
|
0.1
|
|
|
0.6
|
|
|
0.1
|
|
Tax on foreign earnings
|
|
1.0
|
|
|
0.1
|
|
|
2.1
|
|
|
0.2
|
|
|
2.8
|
|
|
0.3
|
|
Effect of tax law changes
|
|
(6.8)
|
|
|
(0.7)
|
|
|
—
|
|
|
—
|
|
|
(1.9)
|
|
|
(0.2)
|
|
Other
|
|
2.7
|
|
|
0.3
|
|
|
2.0
|
|
|
0.2
|
|
|
8.1
|
|
|
0.9
|
|
Effective tax rate
|
|
$
|
213.8
|
|
|
21.3
|
%
|
|
$
|
212.9
|
|
|
22.4
|
%
|
|
$
|
197.5
|
|
|
23.5
|
%
|
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
The tax effect of temporary differences that give rise to net deferred income tax liabilities is presented below. Reclassifications have been made to conform to current year presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
|
Contract liabilities
|
|
$
|
13.2
|
|
|
$
|
46.3
|
|
Equity compensation plans
|
|
20.1
|
|
|
21.1
|
|
Net operating loss and credit carryforwards, net
|
|
22.9
|
|
|
20.1
|
|
Payroll and benefits
|
|
21.8
|
|
|
9.6
|
|
Operating lease liabilities
|
|
47.5
|
|
|
41.0
|
|
Accounts receivable
|
|
26.0
|
|
|
15.6
|
|
Other
|
|
15.9
|
|
|
14.1
|
|
Total deferred tax assets
|
|
167.4
|
|
|
167.8
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Acquisition-related intangibles
|
|
76.5
|
|
|
112.2
|
|
Property and equipment
|
|
39.9
|
|
|
27.0
|
|
International investments
|
|
19.2
|
|
|
19.2
|
|
Operating lease right-of-use assets
|
|
32.5
|
|
|
33.7
|
|
Other
|
|
23.3
|
|
|
17.5
|
|
Total deferred tax liabilities
|
|
191.4
|
|
|
209.6
|
|
Deferred tax asset valuation allowance
|
|
16.9
|
|
|
16.8
|
|
Net deferred tax liabilities
|
|
$
|
40.9
|
|
|
$
|
58.6
|
|
The Company has international income tax net operating losses of $6 million that do not expire and state and international tax credit carryforwards of $23 million, which expire at various dates from 2024 through 2027.
Due to the nature of the CDW UK acquisition, the Company has provided US income taxes of $19 million on the excess of the financial reporting value of the investment over the corresponding tax basis. The Company is indefinitely reinvested in its UK business, and therefore will not provide for any US deferred taxes on the earnings of the UK business. The Company is not permanently reinvested in its Canadian business and therefore has recognized deferred tax liabilities of $1 million as of December 31, 2020 related to Canada withholding taxes on earnings of its Canadian business.
In the ordinary course of business, the Company is subject to review by domestic and foreign taxing authorities, including the Internal Revenue Service ("IRS"). In general, the Company is no longer subject to audit by the IRS or state, local, or foreign taxing authorities for tax years through 2014. Various taxing authorities are in the process of auditing income tax returns of the Company and its subsidiaries. The Company does not anticipate that any adjustments from the audits would have a material impact on its Consolidated Financial Statements.
Changes in the Company's unrecognized tax benefits as of December 31, 2020, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Balance as of January 1
|
|
$
|
17.7
|
|
|
$
|
15.1
|
|
|
$
|
—
|
|
Additions for tax positions related to current year
|
|
0.1
|
|
|
2.6
|
|
|
15.1
|
|
Additions for tax positions related to prior year
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
$
|
18.3
|
|
|
$
|
17.7
|
|
|
$
|
15.1
|
|
As of December 31, 2020, the Company had $18 million of unrecognized tax benefits that, if recognized, would have decreased income taxes and the corresponding effective income tax rate and increased net income. The impact of
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
recognizing these tax benefits, net of the federal income tax benefit related to unrecognized state income tax benefits, would be approximately $15 million.
12. Leases
The Company has operating leases primarily for real estate, data centers and equipment. Lease terms range from 1 year to 16 years.
Supplemental Consolidated Balance Sheets information related to the Company's operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Classification on the Consolidated Balance Sheets
|
|
2020
|
|
2019
|
Assets
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
130.8
|
|
|
$
|
131.8
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
Accrued expenses and other current liabilities - Other
|
|
$
|
25.6
|
|
|
$
|
30.1
|
|
Long-term
|
|
Long-term operating lease liabilities
|
|
169.0
|
|
|
131.1
|
|
Total lease liabilities
|
|
|
|
$
|
194.6
|
|
|
$
|
161.2
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Lease term and discount rate
|
|
2020
|
|
2019
|
Weighted average remaining lease term (years)
|
|
10.3
|
|
9.7
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
3.98
|
%
|
|
4.78
|
%
|
|
|
|
|
|
|
|
Operating lease expense for the years ended December 31, 2020 and 2019 was $53 million and $93 million, respectively. Prior to the adoption of Topic 842, operating lease expense for the year ended December 31, 2018 was $30 million.
Maturities of operating lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
2021
|
|
$
|
32.8
|
|
2022
|
|
26.7
|
|
2023
|
|
22.5
|
|
2024
|
|
19.5
|
|
2025
|
|
18.3
|
|
Thereafter
|
|
123.4
|
|
Total lease payments
|
|
$
|
243.2
|
|
Less: Interest
|
|
(48.6)
|
|
Present value of lease liabilities
|
|
$
|
194.6
|
|
Supplemental cash flow information related to operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
35.8
|
|
|
$
|
88.0
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
|
|
|
Operating leases
|
|
$
|
26.7
|
|
|
$
|
110.2
|
|
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
13. Stockholders' Equity
Share Repurchase Program
The Company has a share repurchase program under which it may repurchase shares of its common stock in the open market or through privately negotiated other transactions, depending on share price, market conditions and other factors. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of shares, and repurchases may be commenced or suspended from time to time without prior notice.
During 2020, the Company repurchased 2.6 million shares of its common stock for $341 million. These repurchases occurred under the program announced on February 7, 2019, by which the Board of Directors authorized an increase to the Company's share repurchase program by $1.0 billion. As of December 31, 2020, the Company has $338 million remaining under this program.
14. Equity-Based Compensation
Equity-based compensation expense, which is recorded in Selling and administrative expenses in the Consolidated Statements of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Equity-based compensation expense
|
|
$
|
42.5
|
|
|
$
|
48.5
|
|
|
$
|
40.7
|
|
Income tax benefit(1)
|
|
(7.7)
|
|
|
(9.8)
|
|
|
(9.9)
|
|
Equity-based compensation expense, net of tax
|
|
$
|
34.8
|
|
|
$
|
38.7
|
|
|
$
|
30.8
|
|
(1)Represents equity-based compensation tax expense at the statutory tax rates. Excess tax benefits associated with equity awards are excluded from this disclosure and separately disclosed in Note 11 (Income Taxes).
The total unrecognized compensation cost related to non-vested awards was $43 million as of December 31, 2020 and is expected to be recognized over a weighted-average period of 2.0 years.
2013 Long-Term Incentive Plan
The 2013 Long-Term Incentive Plan ("2013 LTIP") provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock and performance awards. The maximum aggregate number of shares that may be issued under the 2013 LTIP is 15.5 million shares of the Company's common stock, in addition to the 3.8 million shares of restricted stock granted in exchange for unvested Class B Common Units in connection with the Company's Initial Public Offering ("IPO"). As of December 31, 2020, 2.6 million shares were available for issuance under the 2013 LTIP, which was approved by the Company's pre-IPO shareholders. Authorized but unissued shares are reserved for issuance in connection with equity-based awards.
Stock Options
The exercise price of a stock option granted is equal to the fair value of the underlying stock on the date of the grant. Stock options have a contractual term of ten years and generally vest ratably over three years. To estimate the fair value of options granted, the Company uses the Black-Scholes option pricing model. The weighted-average assumptions used to value the stock options granted were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Grant date fair value
|
|
$
|
20.46
|
|
|
$
|
19.26
|
|
|
$
|
14.80
|
|
Volatility (1)
|
|
25.50
|
%
|
|
20.00
|
%
|
|
20.00
|
%
|
Risk-free rate (2)
|
|
0.51
|
%
|
|
2.53
|
%
|
|
2.75
|
%
|
Expected dividend yield
|
|
1.52
|
%
|
|
1.23
|
%
|
|
1.14
|
%
|
Expected term (in years) (3)
|
|
6.0
|
|
6.0
|
|
6.0
|
(1)Based upon an assessment of the two-year and five-year historical and implied volatility for the Company's selected peer group, adjusted for the Company's leverage.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
(2)Based on a composite US Treasury rate.
(3)Calculated using the simplified method, which defines the expected term as the average of the option's contractual term and the option's weighted-average vesting period. The Company utilizes this method as it has limited historical stock option data that is sufficient to derive a reasonable estimate of the expected stock option term.
Stock option activity for the year ended December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of Options
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value
|
Outstanding at January 1, 2020
|
|
4,138,242
|
|
|
$
|
59.39
|
|
|
|
|
|
Granted
|
|
991,431
|
|
|
100.80
|
|
|
|
|
|
Forfeited/Expired
|
|
(44,409)
|
|
|
92.54
|
|
|
|
|
|
Exercised(1)
|
|
(1,119,812)
|
|
|
44.05
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
3,965,452
|
|
|
$
|
73.71
|
|
|
6.48
|
|
$
|
230.3
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at December 31, 2020
|
|
2,192,951
|
|
|
$
|
56.63
|
|
|
4.98
|
|
$
|
164.8
|
|
Expected to vest after December 31, 2020
|
|
1,745,547
|
|
|
$
|
94.70
|
|
|
8.32
|
|
$
|
64.7
|
|
(1)The total intrinsic value of stock options exercised during the years ended December 31, 2020, 2019 and 2018 was $94 million, $83 million and $47 million, respectively.
Restricted Stock Units ("RSUs")
Restricted stock units represent the right to receive unrestricted shares of the Company's stock at the time of vesting. RSUs generally cliff-vest at the end of three years. The fair value of RSUs is equal to the closing price of the Company's common stock on date of grant.
RSU activity for the year ended December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted-Average Grant-Date Fair Value
|
Non-vested at January 1, 2020
|
|
209,378
|
|
|
$
|
75.56
|
|
Granted (1)
|
|
66,685
|
|
|
112.55
|
|
Vested (2)
|
|
(172,691)
|
|
|
68.78
|
|
Forfeited
|
|
(10,936)
|
|
|
86.16
|
|
Non-vested at December 31, 2020
|
|
92,436
|
|
|
$
|
107.88
|
|
(1)The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2020, 2019 and 2018 was $112.55, $103.24 and $73.95, respectively.
(2)The aggregate fair value of RSUs that vested during the years ended December 31, 2020, 2019 and 2018 was $12 million, $4 million and $2 million, respectively.
Performance Share Units ("PSUs")
Performance share units represent the right to receive unrestricted shares of the Company's stock at the time of vesting. PSUs are granted under the 2013 LTIP which cliff-vest at the end of three years. The percentage of PSUs that shall vest will range from 0% to 200% of the number of PSUs granted based on the Company's performance against a cumulative adjusted free cash flow measure and cumulative non-GAAP net income per diluted share measure over a three-year performance period.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
PSU activity for the year ended December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted-Average Grant-Date Fair Value
|
Non-vested at January 1, 2020
|
|
381,905
|
|
|
$
|
87.78
|
|
Granted (1)
|
|
253,307
|
|
|
102.96
|
|
Attainment Adjustment (2)
|
|
166,574
|
|
|
59.00
|
|
Vested (3)
|
|
(353,245)
|
|
|
68.07
|
|
Forfeited
|
|
(27,377)
|
|
|
88.98
|
|
Non-vested at December 31, 2020
|
|
421,164
|
|
|
$
|
102.07
|
|
(1)The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2020, 2019 and 2018 was $102.96, $101.33 and $73.74, respectively.
(2)During the year ended December 31, 2020, the attainment on PSUs vested at December 31, 2019 was adjusted to reflect actual performance.
(3)The aggregate fair value of PSUs that vested during the years ended December 31, 2020, 2019 and 2018 was $24 million, $18 million and $13 million, respectively.
Equity Awards Granted by Seller of CDW UK
As part of the Company's acquisition of CDW UK in 2015, stock options were granted by one of the sellers of CDW UK to certain CDW UK coworkers. In 2020, there were no outstanding option awards granted by this seller. In 2019 and 2018, 110,978 and 456,613 stock options, respectively, vested and were exercised. The activity was reported as a financing activity in the Consolidated Statement of Cash Flows and as increases to Accumulated Deficit in the Consolidated Statement of Stockholders' Equity for the years ended December 31, 2019 and 2018.
15. Earnings Per Share
The numerator for both basic and diluted earnings per share is Net income. The denominator for basic earnings per share is the weighted-average shares outstanding during the period.
A reconciliation of basic weighted-average shares outstanding to diluted weighted-average shares outstanding is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Basic weighted-average shares outstanding
|
|
142.6
|
|
|
145.1
|
|
|
150.9
|
|
Effect of dilutive securities (1)
|
|
2.2
|
|
|
2.7
|
|
|
2.7
|
|
Diluted weighted-average shares outstanding (2)
|
|
144.8
|
|
|
147.8
|
|
|
153.6
|
|
(1) The dilutive effect of outstanding stock options, restricted stock units, performance share units and Coworker Stock Purchase Plan units is reflected in the diluted weighted-average shares outstanding using the treasury stock method.
(2) There were fewer than 0.1 million potential common shares excluded from diluted weighted-average shares outstanding for the years ended December 31, 2020, 2019 and 2018, respectively, as their inclusion would have had an anti-dilutive effect.
16. Coworker Retirement and Other Compensation Benefits
Profit Sharing Plan and Other Savings Plans
The Company has a profit-sharing plan that includes a salary reduction feature established under the Internal Revenue Code Section 401(k) covering substantially all coworkers in the US. In addition, coworkers outside the US participate in other savings plans. Company contributions to the profit sharing and other savings plans are made in cash and
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
determined at the discretion of the Board of Directors. For the years ended December 31, 2020, 2019 and 2018, the amounts expensed for these plans were $28 million, $38 million and $34 million, respectively.
Coworker Stock Purchase Plan
The Company has a Coworker Stock Purchase Plan ("CSPP") that provides the opportunity for eligible coworkers to acquire shares of the Company's common stock at a 5% discount from the closing market price on the final day of the offering period. There is no compensation expense associated with the CSPP.
17. Commitments and Contingencies
The Company is party to various legal proceedings that arise in the ordinary course of its business, which include commercial, intellectual property, employment, tort and other litigation matters. The Company is also subject to audit by federal, state, international, national, provincial and local authorities, and by various partners, group purchasing organizations and customers, including government agencies, relating to purchases and sales under various contracts. In addition, the Company is subject to indemnification claims under various contracts. From time to time, certain customers of the Company file voluntary petitions for reorganization or liquidation under the US bankruptcy laws or similar laws of the jurisdictions for the Company's business activities outside of the US. In such cases, certain pre-petition payments received by the Company could be considered preference items and subject to return to the bankruptcy administrator.
As of December 31, 2020, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company's consolidated financial statements could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.
18. Segment Information
The Company's segment information reflects the way the Chief Operating Decision Maker uses internal reporting to evaluate business performance, allocate resources and manage operations.
The Company has three reportable segments: Corporate, which is comprised primarily of private sector business customers with more than 250 employees in the US, Small Business, primarily servicing private sector business customers with up to 250 employees in the US, and Public, which is comprised of government agencies and education and healthcare institutions in the US. The Company has two other operating segments: CDW UK and CDW Canada, both of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category ("Other").
The Company has centralized logistics and headquarters functions that provide services to the segments. The logistics function includes purchasing, distribution and fulfillment services to support the Corporate, Small Business and Public segments. As a result, costs and intercompany charges associated with the logistics function are fully allocated to all of these segments based on a percent of Net sales. The centralized headquarters function provides services in areas such as accounting, information technology, marketing, legal and coworker services. Headquarters function costs that are not allocated to the segments are included under the heading of "Headquarters" in the tables below.
The Company allocates resources to and evaluates performance of its segments based on Net sales, Operating income and Non-GAAP Operating income. However, the Company has concluded that Operating income is the more useful measure in terms of discussion of operating results, as it is a US GAAP measure.
Segment information for Total assets and capital expenditures is not presented, as such information is not used in measuring segment performance or allocating resources between segments.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Selected Segment Financial Information
Information about the Company's segments for the years ended December 31, 2020, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
Small Business
|
|
Public
|
|
Other
|
|
Headquarters
|
|
Total
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
6,846.0
|
|
|
$
|
1,397.1
|
|
|
$
|
8,137.7
|
|
|
$
|
2,086.7
|
|
|
$
|
—
|
|
|
$
|
18,467.5
|
|
Operating income (loss)
|
|
489.5
|
|
|
99.0
|
|
|
678.2
|
|
|
65.9
|
|
|
(153.4)
|
|
|
1,179.2
|
|
Depreciation and amortization expense
|
|
(73.2)
|
|
|
(18.3)
|
|
|
(229.7)
|
|
|
(32.5)
|
|
|
(71.9)
|
|
|
(425.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
7,499.0
|
|
|
$
|
1,510.3
|
|
|
$
|
6,864.8
|
|
|
$
|
2,158.3
|
|
|
$
|
—
|
|
|
$
|
18,032.4
|
|
Operating income (loss)
|
|
585.1
|
|
|
107.5
|
|
|
475.0
|
|
|
101.6
|
|
|
(135.6)
|
|
|
1,133.6
|
|
Depreciation and amortization expense
|
|
(86.9)
|
|
|
(22.5)
|
|
|
(56.3)
|
|
|
(31.2)
|
|
|
(70.2)
|
|
|
(267.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
6,842.5
|
|
|
$
|
1,359.6
|
|
|
$
|
6,154.7
|
|
|
$
|
1,883.7
|
|
|
$
|
—
|
|
|
$
|
16,240.5
|
|
Operating income (loss)
|
|
530.4
|
|
|
94.4
|
|
|
405.0
|
|
|
82.2
|
|
|
(124.7)
|
|
|
987.3
|
|
Depreciation and amortization expense
|
|
(88.2)
|
|
|
(22.1)
|
|
|
(51.2)
|
|
|
(31.8)
|
|
|
(72.3)
|
|
|
(265.6)
|
|
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Geographic Areas and Revenue Mix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
Corporate
|
|
Small Business
|
|
Public
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Geography(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
6,823.6
|
|
|
$
|
1,397.1
|
|
|
$
|
8,137.7
|
|
|
$
|
20.8
|
|
|
$
|
16,379.2
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World
|
22.4
|
|
|
—
|
|
|
—
|
|
|
2,065.9
|
|
|
2,088.3
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
6,846.0
|
|
|
1,397.1
|
|
|
8,137.7
|
|
|
2,086.7
|
|
|
18,467.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major Product and Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
5,289.2
|
|
|
1,156.1
|
|
|
6,844.0
|
|
|
1,544.1
|
|
|
14,833.4
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
1,088.3
|
|
|
189.3
|
|
|
982.8
|
|
|
320.6
|
|
|
2,581.0
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
400.8
|
|
|
31.5
|
|
|
269.8
|
|
|
211.8
|
|
|
913.9
|
|
|
|
|
|
|
|
|
|
|
|
Other(2)
|
67.7
|
|
|
20.2
|
|
|
41.1
|
|
|
10.2
|
|
|
139.2
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
6,846.0
|
|
|
1,397.1
|
|
|
8,137.7
|
|
|
2,086.7
|
|
|
18,467.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
6,846.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,846.0
|
|
|
|
|
|
|
|
|
|
|
|
Small Business
|
—
|
|
|
1,397.1
|
|
|
—
|
|
|
—
|
|
|
1,397.1
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
—
|
|
|
—
|
|
|
2,978.5
|
|
|
—
|
|
|
2,978.5
|
|
|
|
|
|
|
|
|
|
|
|
Education
|
—
|
|
|
—
|
|
|
3,458.1
|
|
|
—
|
|
|
3,458.1
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
—
|
|
|
—
|
|
|
1,701.1
|
|
|
—
|
|
|
1,701.1
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
2,086.7
|
|
|
2,086.7
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
6,846.0
|
|
|
1,397.1
|
|
|
8,137.7
|
|
|
2,086.7
|
|
|
18,467.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transferred at a point in time where CDW is principal
|
6,140.7
|
|
|
1,301.3
|
|
|
7,477.4
|
|
|
1,835.5
|
|
|
16,754.9
|
|
|
|
|
|
|
|
|
|
|
|
Transferred at a point in time where CDW is agent
|
457.4
|
|
|
84.5
|
|
|
292.5
|
|
|
61.6
|
|
|
896.0
|
|
|
|
|
|
|
|
|
|
|
|
Transferred over time where CDW is principal
|
247.9
|
|
|
11.3
|
|
|
367.8
|
|
|
189.6
|
|
|
816.6
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
$
|
6,846.0
|
|
|
$
|
1,397.1
|
|
|
$
|
8,137.7
|
|
|
$
|
2,086.7
|
|
|
$
|
18,467.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.
(2)Includes items such as delivery charges to customers.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
Corporate
|
|
Small Business
|
|
Public
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Geography(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
7,485.7
|
|
|
$
|
1,510.3
|
|
|
$
|
6,864.8
|
|
|
$
|
32.5
|
|
|
$
|
15,893.3
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World
|
13.3
|
|
|
—
|
|
|
—
|
|
|
2,125.8
|
|
|
2,139.1
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
7,499.0
|
|
|
1,510.3
|
|
|
6,864.8
|
|
|
2,158.3
|
|
|
18,032.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major Product and Services(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
5,963.7
|
|
|
1,264.7
|
|
|
5,624.9
|
|
|
1,628.9
|
|
|
14,482.2
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
1,069.2
|
|
|
196.0
|
|
|
1,019.6
|
|
|
300.2
|
|
|
2,585.0
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
395.8
|
|
|
28.5
|
|
|
199.0
|
|
|
217.6
|
|
|
840.9
|
|
|
|
|
|
|
|
|
|
|
|
Other(3)
|
70.3
|
|
|
21.1
|
|
|
21.3
|
|
|
11.6
|
|
|
124.3
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
7,499.0
|
|
|
1,510.3
|
|
|
6,864.8
|
|
|
2,158.3
|
|
|
18,032.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
7,499.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,499.0
|
|
|
|
|
|
|
|
|
|
|
|
Small Business
|
—
|
|
|
1,510.3
|
|
|
—
|
|
|
—
|
|
|
1,510.3
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
—
|
|
|
—
|
|
|
2,519.3
|
|
|
—
|
|
|
2,519.3
|
|
|
|
|
|
|
|
|
|
|
|
Education
|
—
|
|
|
—
|
|
|
2,411.6
|
|
|
—
|
|
|
2,411.6
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
—
|
|
|
—
|
|
|
1,933.9
|
|
|
—
|
|
|
1,933.9
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
2,158.3
|
|
|
2,158.3
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
7,499.0
|
|
|
1,510.3
|
|
|
6,864.8
|
|
|
2,158.3
|
|
|
18,032.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transferred at a point in time where CDW is principal
|
6,818.7
|
|
|
1,423.1
|
|
|
6,410.2
|
|
|
1,900.6
|
|
|
16,552.6
|
|
|
|
|
|
|
|
|
|
|
|
Transferred at a point in time where CDW is agent
|
446.1
|
|
|
80.0
|
|
|
248.5
|
|
|
59.6
|
|
|
834.2
|
|
|
|
|
|
|
|
|
|
|
|
Transferred over time where CDW is principal
|
234.2
|
|
|
7.2
|
|
|
206.1
|
|
|
198.1
|
|
|
645.6
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
$
|
7,499.0
|
|
|
$
|
1,510.3
|
|
|
$
|
6,864.8
|
|
|
$
|
2,158.3
|
|
|
$
|
18,032.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.
(2)Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the year ended December 31, 2020.
(3)Includes items such as delivery charges to customers.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
Corporate
|
|
Small Business
|
|
Public
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Geography(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
6,834.4
|
|
|
$
|
1,359.6
|
|
|
$
|
6,154.7
|
|
|
$
|
30.9
|
|
|
$
|
14,379.6
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World
|
8.1
|
|
|
—
|
|
|
—
|
|
|
1,852.8
|
|
|
1,860.9
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
6,842.5
|
|
|
1,359.6
|
|
|
6,154.7
|
|
|
1,883.7
|
|
|
16,240.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major Product and Services(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
5,464.9
|
|
|
1,135.2
|
|
|
5,039.3
|
|
|
1,492.3
|
|
|
13,131.7
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
973.3
|
|
|
175.2
|
|
|
937.0
|
|
|
213.6
|
|
|
2,299.1
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
336.9
|
|
|
28.1
|
|
|
161.8
|
|
|
169.1
|
|
|
695.9
|
|
|
|
|
|
|
|
|
|
|
|
Other(3)
|
67.4
|
|
|
21.1
|
|
|
16.6
|
|
|
8.7
|
|
|
113.8
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
6,842.5
|
|
|
1,359.6
|
|
|
6,154.7
|
|
|
1,883.7
|
|
|
16,240.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
6,842.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,842.5
|
|
|
|
|
|
|
|
|
|
|
|
Small Business
|
—
|
|
|
1,359.6
|
|
|
—
|
|
|
—
|
|
|
1,359.6
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
—
|
|
|
—
|
|
|
2,097.3
|
|
|
—
|
|
|
2,097.3
|
|
|
|
|
|
|
|
|
|
|
|
Education
|
—
|
|
|
—
|
|
|
2,327.4
|
|
|
—
|
|
|
2,327.4
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
—
|
|
|
—
|
|
|
1,730.0
|
|
|
—
|
|
|
1,730.0
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
1,883.7
|
|
|
1,883.7
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
6,842.5
|
|
|
1,359.6
|
|
|
6,154.7
|
|
|
1,883.7
|
|
|
16,240.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transferred at a point in time where CDW is principal
|
6,256.5
|
|
|
1,281.3
|
|
|
5,758.6
|
|
|
1,687.6
|
|
|
14,984.0
|
|
|
|
|
|
|
|
|
|
|
|
Transferred at a point in time where CDW is agent
|
389.1
|
|
|
69.4
|
|
|
211.5
|
|
|
49.8
|
|
|
719.8
|
|
|
|
|
|
|
|
|
|
|
|
Transferred over time where CDW is principal
|
196.9
|
|
|
8.9
|
|
|
184.6
|
|
|
146.3
|
|
|
536.7
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
$
|
6,842.5
|
|
|
$
|
1,359.6
|
|
|
$
|
6,154.7
|
|
|
$
|
1,883.7
|
|
|
$
|
16,240.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.
(2)Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the year ended December 31, 2020.
(3)Includes items such as delivery charges to customers.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
The following table presents Net sales by major category for the years ended December 31, 2020, 2019 and 2018. Categories are based upon internal classifications.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019(1)
|
|
2018(1)
|
|
|
|
|
|
Net Sales
|
|
Percentage
of Total Net
Sales
|
|
Net Sales
|
|
Percentage
of Total Net
Sales
|
|
Net Sales
|
|
Percentage
of Total Net
Sales
|
|
|
|
|
Notebooks/Mobile Devices
|
$
|
5,486.2
|
|
|
29.7
|
%
|
|
$
|
4,344.9
|
|
|
24.1
|
%
|
|
$
|
3,843.3
|
|
|
23.7
|
%
|
|
|
|
|
Netcomm Products
|
1,955.0
|
|
|
10.6
|
|
|
2,189.1
|
|
|
12.1
|
|
|
2,116.6
|
|
|
13.0
|
|
|
|
|
|
Desktops
|
1,132.4
|
|
|
6.1
|
|
|
1,547.3
|
|
|
8.6
|
|
|
1,254.9
|
|
|
7.7
|
|
|
|
|
|
Video
|
1,190.8
|
|
|
6.4
|
|
|
1,272.9
|
|
|
7.1
|
|
|
1,184.1
|
|
|
7.3
|
|
|
|
|
|
Enterprise and Data Storage (Including Drives)
|
947.4
|
|
|
5.1
|
|
|
1,147.6
|
|
|
6.4
|
|
|
1,102.4
|
|
|
6.8
|
|
|
|
|
|
Other Hardware
|
4,121.6
|
|
|
22.3
|
|
|
3,980.4
|
|
|
22.1
|
|
|
3,630.4
|
|
|
22.4
|
|
|
|
|
|
Total Hardware
|
14,833.4
|
|
|
80.2
|
|
|
14,482.2
|
|
|
80.4
|
|
|
13,131.7
|
|
|
80.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software(2)
|
2,581.0
|
|
|
14.0
|
|
|
2,585.0
|
|
|
14.3
|
|
|
2,299.1
|
|
|
14.2
|
|
|
|
|
|
Services(2)
|
913.9
|
|
|
4.9
|
|
|
840.9
|
|
|
4.7
|
|
|
695.9
|
|
|
4.3
|
|
|
|
|
|
Other(3)
|
139.2
|
|
|
0.9
|
|
|
124.3
|
|
|
0.6
|
|
|
113.8
|
|
|
0.6
|
|
|
|
|
|
Total Net sales
|
$
|
18,467.5
|
|
|
100.0
|
%
|
|
$
|
18,032.4
|
|
|
100.0
|
%
|
|
$
|
16,240.5
|
|
|
100.0
|
%
|
|
|
|
|
(1)Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the year ended December 31, 2020.
(2)Certain software and services revenues are recorded on a net basis for accounting purposes. As a result, the category percentage of net revenues is not representative of the category percentage of gross profits.
(3)Includes items such as delivery charges to customers.
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
19. Selected Quarterly Financial Results (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Net sales:
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
1,911.0
|
|
|
$
|
1,557.5
|
|
|
$
|
1,660.0
|
|
|
$
|
1,717.5
|
|
|
|
|
|
|
|
|
|
|
Small Business
|
|
391.5
|
|
|
302.1
|
|
|
337.0
|
|
|
366.5
|
|
|
|
|
|
|
|
|
|
|
Public:
|
|
|
|
|
|
|
|
|
Government
|
|
568.5
|
|
|
719.7
|
|
|
847.7
|
|
|
842.6
|
|
Education
|
|
476.2
|
|
|
876.8
|
|
|
1,078.2
|
|
|
1,026.9
|
|
Healthcare
|
|
480.6
|
|
|
425.6
|
|
|
367.9
|
|
|
427.0
|
|
Total Public
|
|
1,525.3
|
|
|
2,022.1
|
|
|
2,293.8
|
|
|
2,296.5
|
|
Other
|
|
561.4
|
|
|
484.0
|
|
|
465.6
|
|
|
575.7
|
|
Net sales
|
|
$
|
4,389.2
|
|
|
$
|
4,365.7
|
|
|
$
|
4,756.4
|
|
|
$
|
4,956.2
|
|
Gross profit
|
|
756.5
|
|
|
747.2
|
|
|
825.5
|
|
|
880.9
|
|
Operating income
|
|
245.8
|
|
|
283.4
|
|
|
317.8
|
|
|
332.2
|
|
Net income
|
|
167.9
|
|
|
189.1
|
|
|
193.2
|
|
|
238.3
|
|
|
|
|
|
|
|
|
|
|
Basic(1)
|
|
1.18
|
|
|
1.32
|
|
|
1.36
|
|
|
1.67
|
|
Diluted(1)
|
|
1.16
|
|
|
1.31
|
|
|
1.33
|
|
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Net sales:
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
1,736.2
|
|
|
$
|
1,883.9
|
|
|
$
|
1,913.5
|
|
|
$
|
1,965.4
|
|
|
|
|
|
|
|
|
|
|
Small Business
|
|
355.6
|
|
|
377.4
|
|
|
386.2
|
|
|
391.1
|
|
|
|
|
|
|
|
|
|
|
Public:
|
|
|
|
|
|
|
|
|
Government
|
|
488.4
|
|
|
578.4
|
|
|
793.4
|
|
|
659.1
|
|
Education
|
|
400.4
|
|
|
773.6
|
|
|
807.0
|
|
|
430.6
|
|
Healthcare
|
|
441.9
|
|
|
488.1
|
|
|
500.5
|
|
|
503.4
|
|
Total Public
|
|
1,330.7
|
|
|
1,840.1
|
|
|
2,100.9
|
|
|
1,593.1
|
|
Other
|
|
535.4
|
|
|
528.5
|
|
|
507.1
|
|
|
587.3
|
|
Net sales
|
|
$
|
3,957.9
|
|
|
$
|
4,629.9
|
|
|
$
|
4,907.7
|
|
|
$
|
4,536.9
|
|
Gross profit
|
|
672.1
|
|
|
773.8
|
|
|
816.5
|
|
|
777.5
|
|
Operating income
|
|
228.9
|
|
|
300.3
|
|
|
320.6
|
|
|
283.8
|
|
Net income
|
|
152.9
|
|
|
196.6
|
|
|
201.7
|
|
|
185.6
|
|
Basic(1)
|
|
1.04
|
|
|
1.35
|
|
|
1.39
|
|
|
1.29
|
|
Diluted(1)
|
|
1.02
|
|
|
1.33
|
|
|
1.37
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Basic and diluted net income per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted net income per share.