CDW Corp 10-Q for FY2021 Q1
CDW Corp (CDW)
10-Q
2021-05-05
For: 2021-03-31
View Original
Added on
April 07, 2026
About this 10-Q
CDW Corp filed this 10-Q on May 5, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.84B
- up 10.2% from $4.39B a year earlier
- Net income
- $232.6M
- up 38.5% from net income of $167.9M a year earlier
- Diluted EPS
- $1.63
- up 40.5% from $1.16 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2021
or
For the transition period from to
Commission File Number 001-35985
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(847 ) 465-6000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | |||||||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of April 30, 2021, there were 140,203,541 shares of common stock, $0.01 par value, outstanding.
CDW CORPORATION AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||||
| PART I | FINANCIAL INFORMATION | |||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II | OTHER INFORMATION | |||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
| SIGNATURES | ||||||||
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in millions, except per share amounts) | |||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| Assets | (unaudited) | ||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Merchandise inventory | |||||||||||
| Miscellaneous receivables | |||||||||||
| Prepaid expenses and other | |||||||||||
Total current assets | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Other assets | |||||||||||
Total Assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable-trade | $ | $ | |||||||||
| Accounts payable-inventory financing | |||||||||||
| Current maturities of long-term debt | |||||||||||
| Contract liabilities | |||||||||||
| Accrued expenses and other current liabilities: | |||||||||||
| Compensation | |||||||||||
| Advertising | |||||||||||
| Sales and income taxes | |||||||||||
| Other | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities: | |||||||||||
| Debt | |||||||||||
| Deferred income taxes | |||||||||||
| Operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
Total long-term liabilities | |||||||||||
| Stockholders' equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Total stockholders' equity | |||||||||||
Total Liabilities and Stockholders' Equity | $ | $ | |||||||||
The accompanying notes are an integral part of the Consolidated Financial Statements.
3
CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in millions, except per-share amounts) (unaudited) | ||||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Net sales | $ | $ | ||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Selling and administrative expenses | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Interest expense, net | ( | ( | ||||||||||||||||||||||||
| Other income, net | ||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income tax expense | ( | ( | ||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||
| Net income per common share: | ||||||||||||||||||||||||||
| Basic | $ | $ | ||||||||||||||||||||||||
| Diluted | $ | $ | ||||||||||||||||||||||||
| Weighted-average common shares outstanding: | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
The accompanying notes are an integral part of the Consolidated Financial Statements.
4
CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in millions) (unaudited) | ||||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Unrealized loss from hedge accounting, net of tax | ( | |||||||||||||||||||||||||
| Reclassification of hedge accounting loss to net income, net of tax | ||||||||||||||||||||||||||
| Foreign currency translation, net of tax | ( | |||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | |||||||||||||||||||||||||
| Comprehensive income | $ | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of the Consolidated Financial Statements.
5
CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in millions) (unaudited) | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Equity-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | |||||||||||||||||||||||||||||||||||
| Coworker Stock Purchase Plan | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||
Dividends paid ($ | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||
| Incentive compensation plan stock withheld for taxes | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Reclassification of hedge accounting loss to net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Impact of adoption of Topic 740 | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Equity-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | |||||||||||||||||||||||||||||||||||
| Coworker Stock Purchase Plan | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||
Dividends paid ($ | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||
| Incentive compensation plan stock withheld for taxes | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Unrealized loss from hedge accounting | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Reclassification of hedge accounting loss to net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| — | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2020 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the Consolidated Financial Statements.
6
CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions) (unaudited) | ||||||||||||||
| Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Equity-based compensation expense | ||||||||||||||
| Deferred income taxes | ( | |||||||||||||
| Provision for credit losses | ( | |||||||||||||
| Other | ||||||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||
| Merchandise inventory | ( | |||||||||||||
| Other assets | ( | ( | ||||||||||||
| Accounts payable-trade | ( | |||||||||||||
| Other liabilities | ||||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Cash flows used in investing activities: | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Acquisition of business, net of cash acquired | ( | |||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Cash flows used in financing activities: | ||||||||||||||
| Proceeds from borrowings under revolving credit facility | ||||||||||||||
| Repayments of borrowings under revolving credit facility | ( | |||||||||||||
| Payments to extinguish long-term debt | ( | |||||||||||||
| Net change in accounts payable-inventory financing | ( | ( | ||||||||||||
| Financing payments for revenue generating assets | ( | |||||||||||||
| Repurchases of common stock | ( | ( | ||||||||||||
| Proceeds from stock option exercises | ||||||||||||||
| Payment of incentive compensation plan withholding taxes | ( | ( | ||||||||||||
| Dividend payments | ( | ( | ||||||||||||
| Other | ( | ( | ||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | |||||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | |||||||||||||
| Cash and cash equivalents—beginning of period | ||||||||||||||
| Cash and cash equivalents—end of period | $ | $ | ||||||||||||
| Supplementary disclosure of cash flow information: | ||||||||||||||
| Interest paid | $ | ( | $ | ( | ||||||||||
| Income taxes paid, net | $ | ( | $ | ( | ||||||||||
The accompanying notes are an integral part of the Consolidated Financial Statements.
7
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 accompanying unaudited interim Consolidated Financial Statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 (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 (the "SEC") for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the "December 31, 2020 Consolidated Financial Statements"). The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the December 31, 2020 Consolidated Financial Statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting of a normal, recurring nature) necessary to present fairly the Company's financial position, results of operations, comprehensive income, cash flows and changes in stockholders' equity as of the dates and for the periods indicated. The unaudited results of operations for such interim periods reported are not necessarily indicative of results for the full year.
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, 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.
The notes to the Consolidated Financial Statements contained in the December 31, 2020 Consolidated Financial Statements include a discussion of the Company's significant accounting policies and estimates. Except as noted within Note 2 (Recent Accounting Pronouncements) for the adoption of Accounting Standards Update ("ASU") 2019-12,
8
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
2. Recent Accounting Pronouncements
Accounting for Income Taxes
On January 1, 2021, the Company adopted and applied ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("Topic 740") in accordance with the applicable transition methods. Among the various updates, the Company adopted the accounting for ownership changes when transitioning from the 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. The adoption of the remaining components of Topic 740 did not have an impact to the Company’s Consolidated Financial Statements.
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, followed by an amendment issued in January 2021. This ASU 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. This ASU, as amended, 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 this ASU along with the related expedients did not have an impact to the Company’s Consolidated Financial Statements.
3. Acquisition
4. Goodwill
The changes in goodwill by reportable segment are as follows:
| Corporate | Small Business | Public | Other(1) | Consolidated | ||||||||||||||||||||||||||||
Balances as of December 31, 2020(2) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Amplified IT acquisition(3) | ||||||||||||||||||||||||||||||||
| Other acquisition adjustments | ||||||||||||||||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||||||||||||||
Balances as of March 31, 2021(2) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(1)Other is comprised of CDW UK and CDW Canada operating segments.
(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 Company's acquisition, see Note 3 (Acquisition).
9
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
5. 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:
| March 31, 2021 | December 31, 2020 | |||||||||||||
Revolving Loan inventory financing agreement(1) | $ | $ | ||||||||||||
| Other inventory financing agreements | ||||||||||||||
| Accounts payable-inventory financing | $ | $ | ||||||||||||
(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.
6. Contract Liabilities and 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 March 31, 2021 and December 31, 2020, the contract liability balance was $327 million and $244 million, respectively. During the three months ended March 31, 2021 and 2020, the Company recognized revenue of $97 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. The following table represents the total transaction price for the remaining performance obligations as of March 31, 2021 related to noncancelable 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 | $ | $ | $ | $ | ||||||||||||||||||||||
10
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
7. Long-Term Debt
| As of March 31, 2021 | As of December 31, 2020 | |||||||||||||||||||||||||||||||
| Maturity Date | Interest Rate | Amount | Interest Rate | Amount | ||||||||||||||||||||||||||||
| Credit Facility | ||||||||||||||||||||||||||||||||
| Senior secured asset-based revolving credit facility | March 2026 | % | $ | % | $ | |||||||||||||||||||||||||||
| Term Loans | ||||||||||||||||||||||||||||||||
CDW UK term loan(1) | August 2021 | % | % | |||||||||||||||||||||||||||||
| Senior secured term loan facility | October 2026 | % | % | |||||||||||||||||||||||||||||
Total term loans | ||||||||||||||||||||||||||||||||
| Unsecured Senior Notes | ||||||||||||||||||||||||||||||||
| Senior notes due 2024 | December 2024 | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2025 | May 2025 | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2028 | April 2028 | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2029 | February 2029 | % | % | |||||||||||||||||||||||||||||
Total unsecured senior notes | ||||||||||||||||||||||||||||||||
| Other long-term obligations | ||||||||||||||||||||||||||||||||
| Unamortized deferred financing fees | ( | ( | ||||||||||||||||||||||||||||||
| Current maturities of long-term debt | ( | ( | ||||||||||||||||||||||||||||||
| Total long-term debt | $ | $ | ||||||||||||||||||||||||||||||
As of March 31, 2021, the Company is in compliance with the covenants under the various credit agreements and indentures.
Credit Facility
The Company 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 March 31, 2021, the Revolving Loan had less than $1 million of undrawn letters of credit, $283 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 February 28, 2021. As of March 31, 2021, the Company could have borrowed up to an additional $1.3 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 5 (Inventory Financing Agreements)), deposits and accounts receivable, and by a second priority interest in substantially all other US assets.
Term Loan
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. The interest rates disclosed in the table above represent the variable interest rates in effect for March 31, 2021 and December 31, 2020, 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 March 31, 2021, the amount of CDW's restricted payment capacity under the Term Loan was $2.4 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 5 (Inventory Financing Agreements), deposits and accounts receivable, and by a first priority interest in substantially all other US assets.
11
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Unsecured Senior Notes
The Senior Notes have fixed interest rates, for which interest is paid semi-annually.
Issuances and Extinguishments
During the first quarter of 2021, the Company amended, extended and increased the size of the Revolving Loan. The amended Revolving Loan (i) authorized CDW UK to draw from the facility, (ii) increased the capacity from $1.45 billion to $1.60 billion, of which $150 million may be borrowed by CDW UK, and (iii) extended the maturity date from March 31, 2022 to March 26, 2026. Due to the addition of CDW UK as a borrower on the amended Revolving Loan, the variable rate CDW UK revolving credit facility was closed. The Company may borrow amounts denominated in US dollars, British pounds or Euros. Additionally, the Company paid off the remaining principal amount on the variable rate CDW UK term loan by drawing on the amended Revolving Loan.
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 and Term Loan were classified as Level 2 within the fair value hierarchy. The carrying value of the Revolving Loan approximates its 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 fees, were as follows:
| March 31, 2021 | December 31, 2020 | |||||||||||||
| Fair value | $ | $ | ||||||||||||
| Carrying value | ||||||||||||||
8. Income Taxes
9. 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:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Basic weighted-average shares outstanding | |||||||||||||||||||||||
Effect of dilutive securities(1) | |||||||||||||||||||||||
Diluted weighted-average shares outstanding(2) | |||||||||||||||||||||||
(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
12
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
10. 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 March 31, 2021, 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.
11. Segment Information
The Company has three reportable segments: Corporate, which is comprised primarily of US private sector business customers with more than 250 employees, Small Business, which primarily serves US private sector business customers with up to 250 employees, 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"). Headquarters function costs that are not allocated to the segments are included under the heading of "Headquarters" in the tables below.
Information about the Company's segments is as follows:
| Corporate | Small Business | Public | Other | Headquarters | Total | |||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Operating income (loss) | ( | |||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Operating income (loss) | ( | |||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||
13
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
Geographic Areas and Revenue Mix
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||
| Corporate | Small Business | Public | Other | Total | |||||||||||||||||||||||||
Geography(1) | |||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||
| Total Net sales | |||||||||||||||||||||||||||||
| Major Product and Services | |||||||||||||||||||||||||||||
| Hardware | |||||||||||||||||||||||||||||
| Software | |||||||||||||||||||||||||||||
| Services | |||||||||||||||||||||||||||||
Other(2) | |||||||||||||||||||||||||||||
| Total Net sales | |||||||||||||||||||||||||||||
| Sales by Channel | |||||||||||||||||||||||||||||
| Corporate | |||||||||||||||||||||||||||||
| Small Business | |||||||||||||||||||||||||||||
| Government | |||||||||||||||||||||||||||||
| Education | |||||||||||||||||||||||||||||
| Healthcare | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total Net sales | |||||||||||||||||||||||||||||
| Timing of Revenue Recognition | |||||||||||||||||||||||||||||
| Transferred at a point in time where CDW is principal | |||||||||||||||||||||||||||||
| Transferred at a point in time where CDW is agent | |||||||||||||||||||||||||||||
| Transferred over time where CDW is principal | |||||||||||||||||||||||||||||
| Total Net sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(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.
14
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)
| Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||
| Corporate | Small Business | Public | Other | Total | |||||||||||||||||||||||||
Geography(1) | |||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||
| Total Net sales | |||||||||||||||||||||||||||||
Major Product and Services(2) | |||||||||||||||||||||||||||||
| Hardware | |||||||||||||||||||||||||||||
| Software | |||||||||||||||||||||||||||||
| Services | |||||||||||||||||||||||||||||
Other(3) | |||||||||||||||||||||||||||||
| Total Net sales | |||||||||||||||||||||||||||||
| Sales by Channel | |||||||||||||||||||||||||||||
| Corporate | |||||||||||||||||||||||||||||
| Small Business | |||||||||||||||||||||||||||||
| Government | |||||||||||||||||||||||||||||
| Education | |||||||||||||||||||||||||||||
| Healthcare | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total Net sales | |||||||||||||||||||||||||||||
| Timing of Revenue Recognition | |||||||||||||||||||||||||||||
| Transferred at a point in time where CDW is principal | |||||||||||||||||||||||||||||
| Transferred at a point in time where CDW is agent | |||||||||||||||||||||||||||||
| Transferred over time where CDW is principal | |||||||||||||||||||||||||||||
| Total Net sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(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 three months ended March 31, 2021.
(3)Includes items such as delivery charges to customers.
15
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 three months ended March 31, 2021 and 2020. Categories are based upon internal classifications.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020(1) | ||||||||||||||||||||||
| Net Sales | Percentage of Total Net Sales | Net Sales | Percentage of Total Net Sales | ||||||||||||||||||||
| Notebooks/Mobile Devices | $ | % | $ | % | |||||||||||||||||||
| Netcomm Products | |||||||||||||||||||||||
| Desktops | |||||||||||||||||||||||
| Video | |||||||||||||||||||||||
| Enterprise and Data Storage (Including Drives) | |||||||||||||||||||||||
| Other Hardware | |||||||||||||||||||||||
| Total Hardware | |||||||||||||||||||||||
Software(2) | |||||||||||||||||||||||
Services(2) | |||||||||||||||||||||||
Other(3) | |||||||||||||||||||||||
| Total Net sales | $ | % | $ | % | |||||||||||||||||||
(1)Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the three months ended March 31, 2021.
(2)Certain software and services revenues are recorded on a net basis as the Company is acting as an agent in the transaction. 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.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated or the context otherwise requires, as used in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," the terms "we," "us," "the Company," "our," "CDW" and similar terms refer to CDW Corporation and its subsidiaries. "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the unaudited interim Consolidated Financial Statements and the related notes included elsewhere in this report and with the audited Consolidated Financial Statements and the related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. This discussion contains forward-looking statements that are subject to numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements. See "Forward-Looking Statements" at the end of this discussion.
Overview
CDW Corporation, 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 US, the UK and Canada. Our 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.
We are vendor, technology and consumption model "agnostic", with a solutions portfolio including more than 100,000 products and services from more than 1,000 leading and emerging brands. Our solutions are delivered in physical, virtual and cloud-based environments through approximately 7,000 customer-facing coworkers, including sellers, highly-skilled technology specialists and advanced service delivery engineers. We are a leading sales channel partner for many original equipment manufacturers ("OEMs"), software publishers and cloud providers (collectively, our "vendor partners"), whose products we sell or include in the solutions we offer. We provide our vendor partners with a cost-effective way to reach customers and deliver a consistent brand experience through our established end-market coverage, technical expertise and extensive customer access.
We have three reportable segments, Corporate, Small Business and Public. Our Corporate segment primarily serves US private sector business customers with more than 250 employees. Our Small Business segment primarily serves US private sector business customers with up to 250 employees. Our Public segment is comprised of government agencies and education and healthcare institutions in the US. We also have two other operating segments: CDW UK and CDW Canada, each of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category ("Other").
We may sell all or only select products that our vendor partners offer. Each vendor partner agreement provides for specific terms and conditions, which may include one or more of the following: product return privileges, price protection policies, purchase discounts and vendor incentive programs, such as purchase or sales rebates and cooperative advertising reimbursements. We also resell software for major software publishers. Our agreements with software publishers allow the end-user customer to acquire software or licensed products and services. In addition to helping our customers determine the best software solutions for their needs, we help them manage their software agreements, including warranties and renewals. A significant portion of our advertising and marketing expenses are reimbursed through cooperative advertising programs with our vendor partners. These programs are at the discretion of our vendor partners and are typically tied to sales or other commitments to be met by us within a specified period of time.
Trends and Key Factors Affecting our Financial Performance
We believe the following key factors may have a meaningful impact on our business performance, influencing our ability to generate sales and achieve our targeted financial and operating results:
•General economic conditions are a key factor affecting our results as they impact our customers' willingness to spend on information technology. This is particularly the case for our Corporate and Small Business customers, as their purchases tend to reflect confidence in their business prospects, which are driven by their discrete perceptions of business and general economic conditions. Additionally, changes in trade policy and product constraints from suppliers could have an adverse impact on our business.
17
•The global spread of the novel coronavirus ("COVID-19") pandemic continues to create significant macroeconomic uncertainty, volatility and disruption, including supply constraints. Supply disruption is being caused by component availability and supply chain logistical issues resulting in extended lead times and unpredictability. Additionally, customers are focused on remote enablement, operations continuity and security to manage hybrid remote environments at scale as it becomes the future work model. We have orchestrated solutions by leveraging client devices, accessories, collaboration tools, security, software and hybrid and cloud offerings to help customers build these capabilities and achieve their objectives.
•Changes in spending policies, budget priorities and funding levels, including current and future stimulus packages, are key factors influencing the purchasing levels of Government, Healthcare and Education customers. Given the COVID-19 pandemic, Education customers have prioritized their budgets towards equity and access to remote learning tools for all students and addressing learning loss. In addition, Healthcare customers' budgets have been pressured although customer spending has increased as they become more optimistic due to more elective procedures and the accelerated pace of vaccinations. As the duration and ongoing economic impacts of the COVID-19 pandemic remain uncertain, current and future budget priorities and funding levels for Government, Healthcare and Education customers may be adversely affected.
•Technology trends drive customer purchasing behaviors in the market. Current technology trends are focused on delivering greater flexibility and efficiency, as well as designing IT securely. These trends are driving customer adoption of solutions such as those delivered via cloud, software defined architectures and hybrid on-premise and off-premise combinations, as well as the evolution of the IT consumption model to more "as a service" offerings, including Device as a Service and managed services. Technology trends could also change as customers consider the impact of the COVID-19 pandemic on their operations.
Key Business Metrics
We monitor a number of financial and non-financial measures and ratios on a regular basis in order to track the progress of our business and make adjustments as necessary. We believe that the most important of these measures and ratios include average daily sales, gross margin, operating margin, Net income, Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP income before income taxes, Non-GAAP net income, Net sales growth on a constant currency basis, Net income per diluted share, Non-GAAP net income per diluted share, free cash flow, return on working capital, Cash and cash equivalents, net working capital, cash conversion cycle, debt levels including available credit, sales per coworker and coworker turnover. These measures and ratios are compared to standards or objectives set by management, so that actions can be taken, as necessary, in order to achieve the standards and objectives.
In this report, we discuss 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, which are non-GAAP financial 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. For the definitions 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 and reconciliations to the most directly comparable US GAAP measure, see "Results of Operations - Non-GAAP Financial Measure Reconciliations."
18
The results of certain business metrics are as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | |||||||||||||||||||||
| Net sales | $ | 4,837.5 | $ | 4,389.2 | |||||||||||||||||||
| Gross profit | 795.2 | 756.5 | |||||||||||||||||||||
| Operating income | 323.4 | 245.8 | |||||||||||||||||||||
| Net income | 232.6 | 167.9 | |||||||||||||||||||||
| Non-GAAP operating income | 367.7 | 303.9 | |||||||||||||||||||||
| Non-GAAP net income | 249.4 | 200.0 | |||||||||||||||||||||
Average daily sales(1) | 76.8 | 68.6 | |||||||||||||||||||||
Net debt(2) | 3,052.1 | 3,257.8 | |||||||||||||||||||||
Cash conversion cycle (in days)(3) | 22 | 20 | |||||||||||||||||||||
(1) There were 63 and 64 selling days for the three months ended March 31, 2021 and 2020, respectively.
(2) Defined as Total debt minus Cash and cash equivalents.
(3) Cash conversion cycle is defined as days of sales outstanding in Accounts receivable and certain receivables due from vendors plus days of supply in Merchandise inventory minus days of purchases outstanding in Accounts payable and Accounts payable-inventory financing, based on a rolling three-month average.
Results of Operations
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
Results of operations, in dollars and as a percentage of Net sales are as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| (dollars in millions) | Dollars in Millions | Percentage of Net Sales | Dollars in Millions | Percentage of Net Sales | ||||||||||||||||||||||
| Net sales | $ | 4,837.5 | 100.0 | % | $ | 4,389.2 | 100.0 | % | ||||||||||||||||||
| Cost of sales | 4,042.3 | 83.6 | 3,632.7 | 82.8 | ||||||||||||||||||||||
| Gross profit | 795.2 | 16.4 | 756.5 | 17.2 | ||||||||||||||||||||||
| Selling and administrative expenses | 471.8 | 9.7 | 510.7 | 11.6 | ||||||||||||||||||||||
| Operating income | 323.4 | 6.7 | 245.8 | 5.6 | ||||||||||||||||||||||
| Interest expense, net | (35.6) | (0.7) | (37.9) | (0.9) | ||||||||||||||||||||||
| Other income, net | 1.1 | — | 3.9 | 0.1 | ||||||||||||||||||||||
| Income before income taxes | 288.9 | 6.0 | 211.8 | 4.8 | ||||||||||||||||||||||
| Income tax expense | (56.3) | (1.2) | (43.9) | (1.0) | ||||||||||||||||||||||
| Net income | $ | 232.6 | 4.8 | % | $ | 167.9 | 3.8 | % | ||||||||||||||||||
19
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:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | Net Sales | Percentage of Total Net Sales | Net Sales | Percentage of Total Net Sales | Dollar Change | Percent Change | Average Daily Sales Percent Change(1) | |||||||||||||||||||||||||||||||||||||
| Corporate | $ | 1,805.6 | 37.3 | % | $ | 1,911.0 | 43.5 | % | $ | (105.4) | (5.5) | % | (4.0) | % | ||||||||||||||||||||||||||||||
| Small Business | 432.7 | 8.9 | 391.5 | 8.9 | 41.2 | 10.5 | 12.3 | |||||||||||||||||||||||||||||||||||||
| Public: | ||||||||||||||||||||||||||||||||||||||||||||
| Government | 516.1 | 10.7 | 568.5 | 13.0 | (52.4) | (9.2) | (7.8) | |||||||||||||||||||||||||||||||||||||
| Education | 943.3 | 19.5 | 476.2 | 10.8 | 467.1 | 98.1 | 101.2 | |||||||||||||||||||||||||||||||||||||
| Healthcare | 462.3 | 9.6 | 480.6 | 11.0 | (18.3) | (3.8) | (2.3) | |||||||||||||||||||||||||||||||||||||
| Total Public | 1,921.7 | 39.8 | 1,525.3 | 34.8 | 396.4 | 26.0 | 28.0 | |||||||||||||||||||||||||||||||||||||
| Other | 677.5 | 14.0 | 561.4 | 12.8 | 116.1 | 20.7 | 22.6 | |||||||||||||||||||||||||||||||||||||
| Total Net sales | $ | 4,837.5 | 100.0 | % | $ | 4,389.2 | 100.0 | % | $ | 448.3 | 10.2 | % | 12.0 | % | ||||||||||||||||||||||||||||||
(1)There were 63 and 64 selling days for the three months ended March 31, 2021 and 2020, respectively.
Total Net sales for the three months ended March 31, 2021 increased $448 million to $4,838 million, compared to the three months ended March 31, 2020. There was one less selling day in the three months ended March 31, 2021 compared to the same period of 2020, and Net sales on an average daily sales basis increased 12.0%. Excluding the impact of foreign currency fluctuations, constant currency Net sales growth on an average daily sales basis was 10.9%. For additional information, see "Non-GAAP Financial Measure Reconciliations" below regarding constant currency Net sales growth.
For the three months ended March 31, 2021, Net sales growth was driven by Education customers prioritizing equity and access to remote learning tools for all students and ways to address learning loss experienced throughout the COVID-19 pandemic. To improve the remote learning experience and to prepare to return to school, Education customers focused on integrated solutions including notebooks/mobile devices, accessories, video and services. Our non-Education customers continued to focus on optimizing their work from home environment as Net sales growth was driven by the shift to notebooks/mobile devices from desktops and the continued mix into Software as a Service. For additional information, see Note 11 (Segment Information) to the accompanying Consolidated Financial Statements.
Corporate segment Net sales for the three months ended March 31, 2021 decreased $105 million, or 5.5%, compared to the three months ended March 31, 2020. On an average daily sales basis, Corporate segment Net sales decreased 4.0%. The effects of the COVID-19 pandemic continued to impact demand from certain customers. Expectations that a hybrid environment will become the future work model resulted in lower demand for desktops and video, partially offset by increased demand for notebooks/mobile devices.
Small Business segment Net sales for the three months ended March 31, 2021 increased $41 million, or 10.5%, compared to the three months ended March 31, 2020. On an average daily sales basis, Small Business segment Net sales increased 12.3%. Customers continued to focus on productivity and mobility as Net sales growth was driven by the shift to notebooks/mobile devices from desktops.
Public segment Net sales for the three months ended March 31, 2021 increased $396 million, or 26.0%, compared to the three months ended March 31, 2020. On an average daily sales basis, Public segment Net sales increased 28.0%. Net sales to Education customers increased 101.2% on an average daily sales basis primarily driven by integrated solutions including notebooks/mobile devices, accessories, video and services. Net sales to Government customers decreased 7.8% on an average daily sales basis primarily driven by software reflecting the continued mix into Software as a Service and the completion of the Census project, comprised of other hardware, including accessories and smartphones, and services. These decreases were partially offset by increases in notebooks/mobile devices and enterprise storage. Net sales to Healthcare customers decreased 2.3% on an average daily sales basis primarily due to desktops as uncertainty about the impacts of the COVID-19 pandemic remain.
20
Net sales in Other, which is comprised of results from our UK and Canadian operations, for the three months ended March 31, 2021 increased $116 million, or 20.7%, compared to the three months ended March 31, 2020. On an average daily sales basis, Other increased 22.6%. Customers in the UK and Canada continued to focus on productivity and mobility as Net sales growth was driven by the shift to notebooks/mobile devices from desktops, which also contributed to growth in Other hardware, including accessories. The UK and Canada also benefited from increased Net sales to public customers, many of whom had fiscal year-ends. UK customer confidence continued to improve as a result of the completion of the UK/European trade agreement and higher vaccination rates. The impact of foreign currency exchange further increased Other Net sales by approximately 840 basis points, primarily due to the favorable translation of the Canadian dollar and British pound to the US dollar.
Gross profit
Gross profit increased $39 million, or 5.1%, to $795 million for the three months ended March 31, 2021, compared to $757 million for the three months ended March 31, 2020. As a percentage of Net sales, Gross profit margin decreased 80 basis points to 16.4% for the three months ended March 31, 2021. The decrease in Gross profit margin was primarily driven by lower product margin, including notebook mix and rate, and overlapping higher margin configuration services in the prior year, partially offset by an increase in the mix of netted down revenues, primarily Software as a Service.
Selling and administrative expenses
Selling and administrative expenses decreased $39 million, or 7.6%, to $472 million for the three months ended March 31, 2021, compared to $511 million for the three months ended March 31, 2020. The decrease was primarily due to lower bad debt expense, lower intangible asset amortization and travel and entertainment expenses, partially offset by higher investments in coworkers. Total coworker count was 10,186, up 82 from 10,104 at March 31, 2020 primarily due to an increase in customer-facing coworkers as a result of our recent acquisitions.
As a percentage of Net sales, Selling and administrative expenses decreased 190 basis points to 9.7% during the three months ended March 31, 2021, compared to 11.6% for the three months ended March 31, 2020, primarily due to lower bad debt expense, lower intangible asset amortization, lower travel and entertainment expenses and lower sales payroll expenses.
Operating income
Operating income by segment, in dollars and as a percentage of Net sales, and the year-over-year percentage change are as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||||||||
| Dollars in Millions | Operating Margin | Dollars in Millions | Operating Margin | Percent Change in Operating Income | ||||||||||||||||||||||||||||
Segments:(1) | ||||||||||||||||||||||||||||||||
| Corporate | $ | 161.4 | 8.9 | % | $ | 127.4 | 6.7 | % | 26.7 | % | ||||||||||||||||||||||
| Small Business | 42.8 | 9.9 | 27.3 | 7.0 | 56.6 | |||||||||||||||||||||||||||
| Public | 136.7 | 7.1 | 112.4 | 7.4 | 21.6 | |||||||||||||||||||||||||||
Other(2) | 27.7 | 4.1 | 14.7 | 2.6 | 88.7 | |||||||||||||||||||||||||||
Headquarters(3) | (45.2) | nm* | (36.0) | nm* | (25.7) | |||||||||||||||||||||||||||
| Total Operating income | $ | 323.4 | 6.7 | % | $ | 245.8 | 5.6 | % | 31.6 | % | ||||||||||||||||||||||
* 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 certain Headquarters' function costs that are not allocated to the segments.
21
Operating income was $323 million for the three months ended March 31, 2021, an increase of $77 million, or 31.6%, compared to $246 million for the three months ended March 31, 2020. Operating income increased primarily due to higher Gross profit dollars, lower bad debt expense and lower intangible asset amortization, partially offset by higher payroll expenses due to investments in coworkers. Total operating margin percentage increased 110 basis points to 6.7% for the three months ended March 31, 2021, from 5.6% for the three months ended March 31, 2020, primarily due to lower bad debt expense, lower intangible asset amortization, lower payroll expenses, and lower travel and entertainment expenses as a percentage of Net sales, partially offset by lower Gross profit margin.
Corporate segment Operating income was $161 million for the three months ended March 31, 2021, an increase of $34 million, or 26.7%, compared to $127 million for the three months ended March 31, 2020. Corporate segment Operating income increased primarily due to lower bad debt expense and lower intangible asset amortization. Corporate segment operating margin percentage increased 220 basis points to 8.9% for the three months ended March 31, 2021, from 6.7% for the three months ended March 31, 2020, primarily due to lower bad debt expense and lower intangible asset amortization as a percentage of Net sales, and an increase in the mix of netted down revenues, primarily Software as a Service.
Small Business segment Operating income was $43 million for the three months ended March 31, 2021, an increase of $16 million, or 56.6%, compared to $27 million for the three months ended March 31, 2020. Small Business segment Operating income increased primarily due to higher Gross profit dollars, lower intangible asset amortization and lower bad debt expense. Small Business segment operating margin percentage increased 290 basis points to 9.9% for the three months ended March 31, 2021, from 7.0% for the three months ended March 31, 2020, primarily due to lower intangible asset amortization, lower bad debt expense and lower payroll as a percentage of Net sales, and an increase in the mix of netted down revenues, primarily Software as a Service.
Public segment Operating income was $137 million for the three months ended March 31, 2021, an increase of $25 million, or 21.6%, compared to $112 million for the three months ended March 31, 2020. Public segment Operating income increased primarily due to higher Gross profit dollars and lower bad debt expense. Public segment operating margin percentage decreased 30 basis points to 7.1% for the three months ended March 31, 2021, from 7.4% for the three months ended March 31, 2020, primarily due to lower product margin, partially offset by lower payroll expenses, lower bad debt expense, lower intangible asset amortization, and lower travel and entertainment expenses as a percentage of Net sales.
Other Operating income was $28 million for the three months ended March 31, 2021, an increase of $13 million, or 88.7%, compared to $15 million for the three months ended March 31, 2020. Other Operating income increased primarily due to higher Gross profit dollars and lower bad debt expense, partially offset by higher sales payroll. Other operating margin percentage increased 150 basis points to 4.1% for the three months ended March 31, 2021, from 2.6% for the three months ended March 31, 2020, primarily due to lower bad debt expense, lower payroll expenses, lower integration costs, and lower travel and entertainment expenses as a percentage of Net sales, partially offset by lower product margin.
Interest expense, net
Interest expense, net, for the three months ended March 31, 2021 was $36 million, a decrease of $2 million compared to $38 million for the three months ended March 31, 2020. This decrease was primarily driven by a lower effective interest rate on the Term Loan in 2021 compared to 2020 and the benefits from the August 2020 senior notes refinancing, partially offset by additional interest expense on the senior notes issued in April 2020.
Income tax expense
Income tax expense was $56 million and $44 million for the three months ended March 31, 2021 and 2020, respectively. The effective tax rate, expressed by calculating the income tax expense as a percentage of Income before income taxes, was 19.5% and 20.7% for the three months ended March 31, 2021 and 2020, respectively. The effective income tax rate for the three months ended March 31, 2021 and 2020 differed from the US federal statutory rate of 21.0% primarily due to excess tax benefits on equity-based compensation, partially offset by state and local income taxes.
The lower effective tax rate for the three months ended March 31, 2021 as compared to the same period of the prior year was primarily attributable to higher excess tax benefits on equity-based compensation, lower non-deductible expenses and lower global intangible low taxed income.
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 three months ended March 31, 2021 and 2020 below.
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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, 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, 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 $368 million for the three months ended March 31, 2021, an increase of $64 million, or 21.0%, compared to $304 million for the three months ended March 31, 2020. As a percentage of Net sales, Non-GAAP operating income was 7.6% and 6.9% for the three months ended March 31, 2021 and 2020, respectively.
| Three Months Ended March 31, | ||||||||||||||
| (dollars in millions) | 2021 | 2020 | ||||||||||||
| Operating income, as reported | $ | 323.4 | $ | 245.8 | ||||||||||
Amortization of intangibles(1) | 21.6 | 44.6 | ||||||||||||
| Equity-based compensation | 15.8 | 8.8 | ||||||||||||
Other adjustments(2) | 6.9 | 4.7 | ||||||||||||
| Non-GAAP operating income | $ | 367.7 | $ | 303.9 | ||||||||||
| Non-GAAP operating income margin | 7.6 | % | 6.9 | % | ||||||||||
(1)Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
(2)Includes other expenses such as acquisition and integration expenses, payroll taxes on equity-based compensation and expenses related to the relocation of the downtown Chicago office.
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Non-GAAP net income
Non-GAAP net income was $249 million for the three months ended March 31, 2021, an increase of $49 million, or 24.7%, compared to $200 million for the three months ended March 31, 2020.
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||||||||||||||
| (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 | $ | 288.9 | $ | (56.3) | $ | 232.6 | $ | 211.8 | $ | (43.9) | $ | 167.9 | ||||||||||||||||||||||||||
Amortization of intangibles(2) | 21.6 | (5.4) | 16.2 | 44.6 | (11.1) | 33.5 | ||||||||||||||||||||||||||||||||
| Equity-based compensation | 15.8 | (20.8) | (5.0) | 8.8 | (13.7) | (4.9) | ||||||||||||||||||||||||||||||||
Other adjustments(3) | 7.3 | (1.7) | 5.6 | 4.7 | (1.2) | 3.5 | ||||||||||||||||||||||||||||||||
| Non-GAAP | $ | 333.6 | $ | (84.2) | $ | 249.4 | $ | 269.9 | $ | (69.9) | $ | 200.0 | ||||||||||||||||||||||||||
(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 acquisition and integration expenses, payroll taxes on equity-based compensation, expenses related to the relocation of the downtown Chicago office and a net loss on extinguishment of long-term debt.
Net sales growth on a constant currency basis
Net sales for the three months ended March 31, 2021 increased $448 million, or 10.2%, to $4,838 million, compared to the three months ended March 31, 2020. Net sales on a constant currency basis, which excludes the impact of foreign currency translation, increased $406 million, or 9.2%.
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | % Change | Average Daily % Change(1) | ||||||||||||||||||||||
| Net sales, as reported | $ | 4,837.5 | $ | 4,389.2 | 10.2 | % | 12.0 | % | ||||||||||||||||||
Foreign currency translation(2) | — | 42.2 | ||||||||||||||||||||||||
| Net sales, on a constant currency basis | $ | 4,837.5 | $ | 4,431.4 | 9.2 | % | 10.9 | % | ||||||||||||||||||
(1)There were 63 and 64 selling days for the three months ended March 31, 2021 and 2020, respectively.
(2)Represents the effect of translating the prior year 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. In the first quarter we experienced variability compared to historic seasonality trends. As uncertainty due to the COVID-19 pandemic 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 March 31, 2021, we had $1.3 billion of availability for borrowings under our senior secured asset-based 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,
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which includes investment for future growth, dividend payments, acquisitions and share repurchases. 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
During the first quarter of 2021, we amended, extended and increased the size of the Revolving Loan. As a result of the amended Revolving Loan, the variable rate CDW UK revolving credit facility was closed. Additionally, we paid off the remaining principal amount on the variable rate CDW UK term loan by drawing on the amended Revolving Loan.
As of March 31, 2021, we had total indebtedness of $3.9 billion, of which $1.5 billion was secured indebtedness. At March 31, 2021, 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 7 (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 5 (Inventory Financing Agreements) to the accompanying Consolidated Financial Statements.
Share Repurchase Program
During the three months ended March 31, 2021, we repurchased 2.4 million shares of our common stock for $358 million under the previously announced share repurchase program. For additional information on our share repurchase program, see "Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds."
Dividends
A summary of 2021 dividend activity for our common stock is as follows:
| Dividend Amount | Declaration Date | Record Date | Payment Date | |||||||||||||||||
| $0.40 | February 10, 2021 | February 25, 2021 | March 10, 2021 | |||||||||||||||||
On May 5, 2021, we announced that our Board of Directors declared a quarterly cash dividend of $0.40 per common share. The dividend will be paid on June 10, 2021 to all stockholders of record as of the close of business on May 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.
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Cash Flows
Cash flows from operating, investing and financing activities are as follows:
| Three Months Ended March 31, | |||||||||||
| (dollars in millions) | 2021 | 2020 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | 344.6 | $ | 223.0 | |||||||
| Investing Activities | |||||||||||
Capital expenditures(1) | (20.7) | (25.4) | |||||||||
| Acquisition of business, net of cash acquired | (212.9) | — | |||||||||
| Cash flows used in investing activities | (233.6) | (25.4) | |||||||||
| Financing Activities | |||||||||||
| Net change in accounts payable - inventory financing | (180.3) | (81.4) | |||||||||
| Financing payments for revenue generating assets | (42.9) | — | |||||||||
| Other cash flows used in financing activities | (420.3) | (48.6) | |||||||||
| Cash flows used in financing activities | (643.5) | (130.0) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 0.9 | (7.2) | |||||||||
| Net (decrease) increase in cash and cash equivalents | $ | (531.6) | $ | 60.4 | |||||||
(1)Includes expenditures for revenue generating assets.
Operating Activities
Cash flows provided by operating activities are as follows:
| Three Months Ended March 31, | |||||||||||||||||
| (dollars in millions) | 2021 | 2020 | Change | ||||||||||||||
| Net income | $ | 232.6 | $ | 167.9 | $ | 64.7 | |||||||||||
Adjustments for the impact of non-cash items(1) | 58.8 | 133.4 | (74.6) | ||||||||||||||
| Net income adjusted for the impact of non-cash items | 291.4 | 301.3 | (9.9) | ||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
Accounts receivable(2) | (15.7) | (209.0) | 193.3 | ||||||||||||||
Merchandise inventory(3) | 15.4 | (66.4) | 81.8 | ||||||||||||||
Accounts payable-trade(4) | (37.2) | 157.4 | (194.6) | ||||||||||||||
Other(5) | 90.7 | 39.7 | 51.0 | ||||||||||||||
| Net cash provided by operating activities | $ | 344.6 | $ | 223.0 | $ | 121.6 | |||||||||||
(1)Includes items such as depreciation and amortization, deferred income taxes, provision for credit losses and equity-based compensation expense.
(2)The change is primarily due to improved collection performance in 2021 and the timing of sales in 2020.
(3)The change is primarily due to a slight decrease in inventory in 2021 as compared to an increase in 2020 related to COVID-19 to address supply constraints.
(4)The change is primarily due to mixing out of vendors with extended payment terms.
(5)The change is primarily due to higher contract liabilities in 2021 and lower receivables from vendors in 2020, partially offset by higher accruals for investments in coworkers at the end of 2020 that was paid in 2021.
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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:
| March 31, | |||||||||||
| (in days) | 2021 | 2020 | |||||||||
Days of sales outstanding (DSO)(1) | 57 | 58 | |||||||||
Days of supply in inventory (DIO)(2) | 16 | 14 | |||||||||
Days of purchases outstanding (DPO)(3) | (51) | (52) | |||||||||
| Cash conversion cycle | 22 | 20 | |||||||||
(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 increased to 22 days at March 31, 2021, compared to 20 days at March 31, 2020. DSO and DPO both decreased 1 day and DIO increased 2 days compared to March 31, 2020. The decrease in DSO was primarily due to improved collections in 2021. The decrease in DPO is primarily due to mixing out of vendors with extended payment terms. The increase in DIO was driven by higher inventory levels in 2021 to support customers in the current supply environment.
Investing Activities
Net cash used in investing activities increased $208 million for the three months ended March 31, 2021 compared to March 31, 2020. This increase was primarily due to the acquisition of Amplified IT LLC on March 15, 2021, partially offset by decreased Capital expenditures. For additional information regarding the acquisition, see Note 3 (Acquisition) to the accompanying Consolidated Financial Statements.
Financing Activities
Net cash used in financing activities increased $514 million for the three months ended March 31, 2021 compared to March 31, 2020. The increase was primarily driven by the higher share repurchases, the mixing out of vendors with extended payment terms under our inventory financing arrangements, decreased borrowings under our revolving credit facilities and increased financing payments for revenue generating assets. For additional information regarding the inventory financing agreements and debt activities, see Note 5 (Inventory Financing Agreements) and Note 7 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
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.
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The following tables set forth Balance Sheet information as of March 31, 2021 and December 31, 2020, and Statement of Operations information for the three months ended March 31, 2021 and for the year ended December 31, 2020. The financial information includes 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
| (dollars in millions) | March 31, 2021 | December 31, 2020 | |||||||||
| Current assets | $ | 4,487.0 | $ | 5,161.3 | |||||||
| Goodwill | 2,452.7 | 2,239.1 | |||||||||
| Other assets | 550.6 | 572.1 | |||||||||
| Total Non-current assets | 3,003.3 | 2,811.2 | |||||||||
| Current liabilities | 2,965.9 | 3,265.0 | |||||||||
| Long-term debt | 3,853.7 | 3,856.5 | |||||||||
| Other liabilities | 178.1 | 209.8 | |||||||||
| Total Long-term liabilities | 4,031.8 | 4,066.3 | |||||||||
Statement of Operations Information
| (dollars in millions) | Three Months Ended March 31, 2021 | Year Ended December 31, 2020 | |||||||||
| Net sales | $ | 4,160.0 | $ | 16,380.8 | |||||||
| Gross profit | 693.1 | 2,851.8 | |||||||||
| Operating income | 295.7 | 1,113.2 | |||||||||
| Net income | 209.8 | 738.8 | |||||||||
Commitments and Contingencies
The information set forth in Note 10 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements is incorporated herein by reference.
Critical Accounting Policies and Estimates
Our critical accounting policies have not changed from those reported in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Pronouncements
The information set forth in Note 2 (Recent Accounting Pronouncements) to the accompanying Consolidated Financial Statements is incorporated herein by reference.
Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical fact are forward-looking statements. These statements relate to analyses and other information, which are based on forecasts of future results or events and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. We claim the protection of The Private Securities Litigation Reform Act of 1995 for all forward-looking statements in this report.
These forward-looking statements are identified by the use of terms and phrases such as "anticipate," "assume," "believe," "estimate," "expect," "goal," "intend," "plan," "potential," "predict," "project," "target" and similar terms and phrases or future or conditional verbs such as "could," "may," "should," "will," and "would." However, these words are not the exclusive means of identifying such statements. Although we believe that our plans, intentions and other expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. All forward-looking statements are subject to risks and uncertainties that may cause actual results or events to differ materially from those that we expected.
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Important factors that could cause actual results or events to differ materially from our expectations, or cautionary statements, are disclosed under the section entitled "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2020 and from time to time in our subsequent Quarterly Reports on Form 10-Q and our other US Securities and Exchange Commission ("SEC") filings. These factors include, among others, CDW's relationships with vendor partners and terms of their agreements; continued innovations in hardware, software and services offerings by CDW's vendor partners; substantial competition that could reduce CDW's market share; the continuing development, maintenance and operation of CDW's information technology systems; potential breaches of data security and failure to protect our information technology systems from cybersecurity threats; potential failures to provide high-quality services to CDW's customers; potential losses of any key personnel; potential adverse occurrences at one of CDW's primary facilities or customer data centers; increases in the cost of commercial delivery services or disruptions of those services; CDW's exposure to accounts receivable and inventory risks; future acquisitions or alliances; fluctuations in CDW's operating results; fluctuations in foreign currency; global and regional economic and political conditions including uncertainties related to COVID-19; potential interruptions of the flow of products from suppliers; decreases in spending on technology products and services; potential failures to comply with Public segment contracts or applicable laws and regulations; current and future legal proceedings and audits; changes in laws, including regulations or interpretations thereof; CDW's level of indebtedness and ability to generate sufficient cash to service such indebtedness; restrictions imposed by agreements relating to CDW's indebtedness on its operations and liquidity; changes in, or the discontinuation of, CDW's share repurchase program or dividend payments; and other risk factors or uncertainties identified from time to time in CDW's filings with the SEC. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in the section entitled "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2020 as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not reflect all of the factors that could cause actual results or events to differ from our expectations. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures of Market Risks" in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. As of March 31, 2021, there have been no material changes in this information.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, has concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal control over financial reporting during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth in Note 10 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in "Part I, Item 1. Financial Statements" of this report is incorporated herein by reference.
Item 1A. Risk Factors
See "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
On February 7, 2019, we announced that our Board of Directors authorized a $1.0 billion increase to our share repurchase program under which we may repurchase shares of our common stock in the open market through privately negotiated or other transactions, depending on share price, market conditions and other factors. On February 10, 2021, we announced that our Board of Directors authorized a $1.25 billion increase to our share repurchase program.
Information relating to the Company's purchases of its common stock during the three months ended March 31, 2021 is as follows:
| Period | Total Number of Shares Purchased (in millions) | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Program (in millions) | Maximum Dollar Value of Shares that May Yet be Purchased Under the Program(1) (in millions) | ||||||||||||||||||||||
| January 1 through January 31, 2021 | 0.8 | $ | 133.27 | 0.8 | $ | 235.4 | ||||||||||||||||||||
| February 1 through February 28, 2021 | 0.7 | $ | 150.11 | 0.7 | $ | 1,383.0 | ||||||||||||||||||||
| March 1 through March 31, 2021 | 0.9 | $ | 158.03 | 0.9 | $ | 1,229.6 | ||||||||||||||||||||
| Total | 2.4 | 2.4 | ||||||||||||||||||||||||
(1)The amounts presented in this column are the remaining total authorized value to be spent after each month's repurchases.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit | Description | |||||||
| 10.1 | ||||||||
| 10.2* | ||||||||
| 22.1 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1** | ||||||||
| 32.2** | ||||||||
| 101.INS* | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |||||||
________________
* Filed herewith
** These items are furnished and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CDW CORPORATION | |||||||||||||||||
| Date: | May 5, 2021 | By: | /s/ Collin B. Kebo | ||||||||||||||
| Collin B. Kebo | |||||||||||||||||
| Senior Vice President and Chief Financial Officer | |||||||||||||||||
| (Duly authorized officer and principal financial officer) | |||||||||||||||||
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Exhibit 10.2
CDW Corporation
Amended and Restated 2013 Long-Term Incentive Plan
Performance Share Unit Award Agreement
CDW Corporation, a Delaware corporation (the “Company”), hereby grants to the individual (the “Holder”) named in the award notice attached hereto (the “Award Notice”) as of the date set forth in the Award Notice (the “Grant Date”), pursuant to the provisions of the CDW Corporation Amended and Restated 2013 Long-Term Incentive Plan (the “Plan”), a performance share unit award (the “Award”) with respect to the number of shares of the Company’s Common Stock, par value $0.01 per share (“Stock”), set forth in the Award Notice, upon and subject to the restrictions, terms and conditions set forth in the Plan and this agreement (the “Agreement”). Capitalized terms not defined herein shall have the meanings specified in the Plan.
1.Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder accepts this Agreement by executing the Award Notice in the space provided therefor and returning an original execution copy of the Award Notice to the Company (or electronically accepting this Agreement within the Holder’s stock plan account with the Company’s stock plan administrator according to the procedures then in effect).
2. Rights as a Stockholder. The Holder shall not be entitled to any privileges of ownership with respect to the shares of Stock subject to the Award unless and until, and only to the extent, such shares become vested pursuant to Section 3 hereof and the Holder becomes a stockholder of record with respect to such shares. As of each date on which the Company pays a cash dividend to record owners of shares of Stock (a “Dividend Date”), the number of shares subject to the Award shall increase by (i) the product of the total number of shares subject to the Award immediately prior to such Dividend Date multiplied by the dollar amount of the cash dividend paid per share of Stock by the Company on such Dividend Date, divided by (ii) the Fair Market Value of a share of Stock on such Dividend Date. Any such additional shares shall be subject to the same vesting conditions and payment terms set forth herein as the shares to which they relate.
3. Restriction Period, Vesting and Settlement.
3.1 Performance-Based Vesting Conditions. Subject to the remainder of this Section 3, the shares of Stock subject to the Award shall vest pursuant to the terms of this Agreement and the Plan based on the achievement of the performance goals set forth in the Award Notice over the performance period set forth in the Award Notice (the “Performance Period”), provided that the Holder remains in continuous employment with the Company through the end of the Performance Period, and the vested portion of the Award shall be paid to the Holder within 70 days after the end of the Performance Period. Attainment of the performance goals shall be determined and certified by the Committee in writing prior to the settlement of the Award.
3.2 Termination of Employment
(a) Termination due to Retirement. If the Holder’s employment with the Company terminates prior to the end of the Performance Period and prior to a Change in Control by reason of the Holder’s Retirement, the Performance Period shall continue through the last day thereof and the Holder shall be entitled to a prorated Award, provided that the Holder has continuously complied with the
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Restrictive Covenants. Such prorated Award shall be equal to the number of shares earned at the end of the Performance Period based on the actual performance during the Performance Period multiplied by a fraction, the numerator of which shall equal the number of full months in the Performance Period during which the Holder was employed by the Company and the denominator of which shall equal 36. Such vested Award shall be paid to the Holder within 70 days after the end of the Performance Period.
(b) Death or Disability. If the Holder dies or terminates employment due to Disability on or before the end of the Performance Period, and in either case prior to a Change in Control, then the Award shall become fully vested. If such death or termination occurs prior to the 24-month anniversary of the first day of the Performance Period, then the performance goals set forth in Section 3.1 shall be deemed to have been satisfied at the target level. If such death or termination occurs on or after the 24-month anniversary of the first day of the Performance Period, then the number of shares of Stock earned pursuant to Section 3.1 shall be based on the projected level of performance through the end of the Performance Period, as determined by the Company for purposes of its financial statements for the fiscal quarter ending prior to the date of such death or termination. The vested Award shall be settled within 70 days following the date of the Holder’s death or termination of employment.
(c) Termination other than due to Retirement, Death or Disability. If the Holder’s employment with the Company terminates prior to the end of the Performance Period and prior to a Change in Control by reason of (i) the Company’s termination of the Holder’s employment for any reason other than death or Disability or (ii) the Holder’s resignation for any reason other than Retirement, then the Award shall be immediately forfeited by the Holder and cancelled by the Company.
3.3. Change in Control.
(a) Satisfaction of Performance Goals. If a Change in Control occurs prior to the 24-month anniversary of the first day of the Performance Period, the performance goals set forth in Section 3.1 shall be deemed to have been satisfied at the target level. If the Change in Control occurs on or after the 24-month anniversary of the first day of the Performance Period, the number of shares of Stock earned pursuant to Section 3.1 shall be based on the projected level of performance through the end of the Performance Period, as determined by the Committee prior to the date of the Change in Control based on performance through the date of such determination. If the Change in Control occurs after the date on which the Participant’s employment is terminated by reason of Retirement, pursuant to Section 3.2(a), the number of shares earned for purposes of such section shall be determined as of the date of the Change in Control in accordance with this Section 3.3(a) and such number of shares, prorated in accordance with Section 3.2(a), shall be settled within 70 days following such Change in Control.
(b) Vesting and Settlement of Award Not Assumed. In the event of a Change in Control prior to the end of the Performance Period pursuant to which the Award is not effectively assumed or continued by the surviving or acquiring corporation in such Change in Control (as determined by the Board or Committee, with appropriate adjustments to the number and kind of shares, in each case, that preserve the value of the shares subject to the Award and other material terms and conditions of the outstanding Award as in effect immediately prior to the Change in Control), the Award shall vest as of the date of the Change in Control, based on the performance level determined in accordance with Section 3.3(a). If the Change in Control constitutes a “change in control event,” within the meaning of Section 409A of the Code, and the Company terminates all deferred compensation plans of the same type to the extent required under Section 409A of the Code, then the Award shall be settled in cash within 70 days following such Change in Control.
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(c) Vesting and Settlement of Award Assumed. In the event of a Change in Control prior to the end of the Performance Period pursuant to which the Award is effectively assumed or continued by the surviving or acquiring corporation in such Change in Control (as determined by the Board or Committee, with appropriate adjustments to the number and kind of shares, in each case, that preserve the value of the shares subject to the Award and other material terms and conditions of the outstanding Award as in effect immediately prior to the Change in Control) and (i) the Holder remains continuously employed through the end of the Performance Period, (ii) the Company terminates the Holder’s employment without Cause or the Holder resigns for Good Reason within 24 months following such Change in Control and the Holder executes and does not revoke a waiver and release of claims in the form prescribed by the Company within 60 days after the date of such termination (iii) the Holder’s employment terminates due to Retirement following such Change in Control, or (iv) the Holder dies or terminates employment due to Disability following such Change in Control, in any such case, the Award shall vest based on the performance level determined in accordance with Section 3.3(a) hereof. In the case of a termination pursuant to clause (ii) of this Section 3.3(c) (termination without Cause or resignation for Good Reason) or in the case of the Holder’s death or termination due to Disability, the Award shall be paid in full, and in the case of a termination pursuant to clause (iii) of this Section 3.3(c) (Retirement), the Award shall be prorated in accordance with, and subject to the terms of, Section 3.2(a). The vested Award shall be settled within 70 days following the end of the Performance Period or, if earlier, the Holder’s termination of employment or death. If, following a Change in Control, the Holder experiences a termination of employment other than as set forth in this Section 3.3(c), the Award shall be immediately forfeited by the Holder and cancelled by the Company.
3.4. Definitions.
(a) Cause. For purposes of this Award, “Cause” shall mean one or more of the following: (A) Holder’s refusal (after written notice and reasonable opportunity to cure) to perform duties properly assigned which are consistent with the scope and nature of Holder's position; (B) Holder’s commission of an act materially and demonstrably detrimental to the financial condition and/or goodwill of the Company or any of its Subsidiaries, which act constitutes gross negligence or willful misconduct in the performance of duties to the Company or any of its Subsidiaries; (C) Holder’s commission of any theft, fraud, act of dishonesty or breach of trust resulting in or intended to result in material personal gain or enrichment of Holder at the direct or indirect expense of the Company or any of its Subsidiaries; (D) Holder’s conviction of, or plea of guilty or nolo contendere to, a felony; (E) Holder’s material violation of any Restrictive Covenant; or (F) Holder’s material and willful violation of the Company’s written policies or of Holder’s statutory or common law duty of loyalty to the Company or its affiliates that in either case is materially injurious to the Company, monetarily or otherwise. No act or failure to act will be considered “willful” (x) unless it is done, or omitted to be done, by Holder in bad faith or without reasonable belief that Holder’s action or omission was in the best interests of the Company or (y) if it is done, or omitted to be done, in reliance on the informed advice of the Company’s outside counsel or independent accountants or at the express direction of the Board.
(b) Disability. For purposes of this Award, “Disability” shall mean the Holder’s absence from the Holder’s duties with the Company on a full-time basis for at least 180 consecutive days as a result of the Holder’s incapacity due to physical or mental illness, or under such other circumstances as the Committee determines, in its sole discretion, constitute a Disability.
(c) Good Reason. For purposes of this Award, “Good Reason” shall mean that the Holder resigns from employment with the Company and its Subsidiaries as a result of one or more of the following reasons: (i) the Company reduces the amount of the Holder’s base salary or cash bonus
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opportunity (it being understood that the Board shall have discretion to set the Company’s and the Holder’s personal performance targets to which the cash bonus will be tied), (ii) the Company adversely changes the Holder’s reporting responsibilities, titles or office as in effect as of the date hereof or reduces his/her position, authority, duties, responsibilities or status materially inconsistent with the positions, authority, duties, responsibilities or status the Holder then holds, (iii) any successor to the Company in any merger, consolidation or transfer of assets does not expressly assume any material obligation of the Company to the Holder under any agreement or plan pursuant to which the Holder receives benefits or rights, or (iv) the Company changes the Holder’s place of work to a location more than fifty (50) miles from the Holder’s present place of work; provided, however, that the occurrence of any such condition shall not constitute Good Reason unless (A) the Holder provides written notice to the Company of the existence of such condition not later than 60 days after the Holder knows or reasonably should know of the existence of such condition, (B) the Company fails to remedy such condition within 30 days after receipt of such notice and (C) the Holder resigns due to the existence of such condition within 60 days after the expiration of the remedial period described in clause (B) hereof.
(d) Restrictive Covenant. For purposes of this Award, “Restrictive Covenant” shall mean any non-competition, non-solicitation, confidentiality or protection of trade secrets (or similar provision regarding intellectual property) covenant by which Holder is bound under any agreement between Holder and the Company and its Subsidiaries.
(e) Retirement. For purposes of this Award, “Retirement” shall mean Holder’s termination of employment at a time when (i) the Holder has attained age 55 and (B) the sum of the Holder’s age and years of employment with or service to the Company or its Subsidiaries equals or exceeds 65; provided that such termination occurs at least six months after the Grant Date.
4. Issuance or Delivery of Shares. Subject to Section 7.12, the Company shall issue or deliver, subject to the conditions of this Agreement, the vested shares of Stock to the Holder at the time specified in Section 3 hereof; provided, however, that in the event of vesting of the Award pursuant to Section 3.3, if the Award constitutes nonqualified deferred compensation (within the meaning of Section 409A of the Code) and such Change in Control is not a “change in control event” (within the meaning of Section 409A of the Code) or the Award otherwise cannot be paid at the time specified in Section 3.3 without complying with the requirements of Section 409A of the Code, then such Award shall be paid within 70 days after the earliest to occur of (i) the last day of the Performance Period, (ii) the Holder’s termination of employment and (iii) the Holder’s death; provided that if the Holder’s right to such payment is subject to a substantial risk of forfeiture as of such payment date, then such payment shall be delayed and paid within 70 days after such substantial risk of forfeiture lapses. Such issuance or delivery shall be evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such issuance or delivery, except as otherwise provided in Section 7. Prior to the issuance to the Holder of the shares of Stock subject to the Award, the Holder shall have no direct or secured claim in any specific assets of the Company or in such shares of Stock, and will have the status of a general unsecured creditor of the Company.
5. Clawback of Proceeds.
5.1. Clawback of Proceeds. This award is subject to the clawback provisions in Section 5.15 of the Plan. In addition, if the Holder materially violates any Restrictive Covenant and such violation occurs on or before the third anniversary of the date of the Holder’s termination of employment: (i) the Award shall be forfeited and (ii) any and all Performance Share Proceeds (as hereinafter defined)
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shall be immediately due and payable by the Holder to the Company. For purposes of this Section, “Performance Share Proceeds” shall mean, with respect to any portion of the Award which is settled later than 24 months prior to the date of the Holder’s termination of employment or service with the Company the Fair Market Value of a share of Stock on the date such portion of the Award was settled, multiplied by the number of shares of Stock issued to the Holder pursuant to the settlement of such portion of the Award. The remedy provided by this Section shall be in addition to and not in lieu of any rights or remedies which the Company may have against the Holder in respect of a breach by the Holder of any duty or obligation to the Company.
5.2. Right of Setoff. The Holder agrees that by accepting the Award the Holder authorizes the Company and its affiliates to deduct any amount or amounts owed by the Holder pursuant to this Section 5 from any amounts payable by or on behalf of the Company or any affiliate to the Holder, including, without limitation, any amount payable to the Holder as salary, wages, vacation pay, bonus or the vesting or settlement of the Award or any stock-based award. This right of setoff shall not be an exclusive remedy and the Company’s or an affiliate’s election not to exercise this right of setoff with respect to any amount payable to the Holder shall not constitute a waiver of this right of setoff with respect to any other amount payable to the Holder or any other remedy.
6. Transfer Restrictions and Investment Representation.
6.1. Nontransferability of Award. The Award may not be transferred by the Holder other than by will or the laws of descent and distribution. Except to the extent permitted by the foregoing sentence, the Award may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Award, the Award and all rights hereunder shall immediately become null and void.
6.2. Investment Representation. The Holder hereby covenants that (a) any sale of any share of Stock acquired upon the vesting of the Award shall be made either pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws and (b) the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Committee shall in its sole discretion deem necessary or advisable.
7. Additional Terms and Conditions of Award.
7.1. Withholding Taxes. As a condition precedent to the issuance or delivery of the Stock upon the vesting of the Award, at the Company’s discretion either (i) the Holder shall pay to the Company such amount as the Company (or an affiliate) determines is required, under all applicable federal, state, local, foreign or other laws or regulations, to be withheld and paid over as income or other withholding taxes (the “Required Tax Payments”) with respect to the Award or (ii) the Company or an affiliate may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company or an affiliate to the Holder, which may include the withholding of whole shares of Stock which would otherwise be delivered to the Holder having an aggregate Fair Market Value, determined as of the date on which such withholding obligation arises, equal to the Required Tax Payments, in either case in accordance with such terms, conditions and procedures that may be prescribed
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by the Company. Shares of Stock withheld may not have a Fair Market Value in excess of the amount determined by applying the maximum individual statutory tax rate in the Holder’s jurisdiction; provided that the Company shall be permitted to limit the number of shares so withheld to a lesser number if necessary, as determined by the Company, to avoid adverse accounting consequences or for administrative convenience; provided, however, that if a fraction of a share of Stock would be required to satisfy the maximum individual statutory rate in the Holder’s jurisdiction, then the number of shares of Stock to be withheld may be rounded up to the next nearest whole share of Stock. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. Any determination by the Company with respect to the withholding of shares of Stock to satisfy the Required Tax Payments shall be made by the Committee if the Holder is subject to Section 16 of the Exchange Act.
7.2. Compliance with Applicable Law. The Award is subject to the condition that if the listing, registration or qualification of the shares of Stock subject to the Award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares hereunder, the shares of Stock subject to the Award shall not be delivered, in whole or in part, unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent, approval or other action.
7.3. Award Confers No Rights to Continued Employment. In no event shall the granting of the Award or its acceptance by the Holder, or any provision of the Agreement or the Plan, give or be deemed to give the Holder any right to continued employment by the Company, any Subsidiary or any affiliate of the Company or affect in any manner the right of the Company, any Subsidiary or any affiliate of the Company to terminate the employment of any person at any time.
7.4. Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Award. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive.
7.5. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan.
7.6. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to CDW Corporation, Attn: General Counsel, 200 N. Milwaukee Avenue, Vernon Hills, Illinois 60061, and if to the Holder, to the last known mailing address of the Holder contained in the records of the Company. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery, (b) by facsimile or electronic mail with confirmation of receipt, (c) by mailing in the United States mails or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile or electronic mail transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication sent to the Company is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company.
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7.7. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws.
7.8. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. In the event that the provisions of this Agreement and the Plan conflict, the Plan shall control. The Holder hereby acknowledges receipt of a copy of the Plan.
7.9. Entire Agreement. This Agreement and the Plan constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Holder with respect to the subject matter hereof, and may not be modified adversely to the Holder’s interest except by means of a writing signed by the Company and the Holder.
7.10. Partial Invalidity. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof and this Agreement shall be construed in all respects as if such invalid or unenforceable provision was omitted.
7.11. Amendment and Waiver. The Company may amend the provisions of this Agreement at any time; provided that an amendment that would adversely affect the Holder’s rights under this Agreement shall be subject to the written consent of the Holder. No course of conduct or failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement.
7.12. Compliance With Section 409A of the Code. This Award is intended to be exempt from or comply with Section 409A of the Code, and shall be interpreted and construed accordingly. To the extent this Agreement provides for the Award to become vested and be settled upon the Holder’s termination of employment, the applicable shares of Stock shall be transferred to the Holder or his or her beneficiary upon the Holder’s “separation from service,” within the meaning of Section 409A of the Code; provided that if the Holder is a “specified employee,” within the meaning of Section 409A of the Code, then to the extent the Award constitutes nonqualified deferred compensation, within the meaning of Section 409A of the Code, such shares of Stock shall be transferred to the Holder or his or her beneficiary upon the earlier to occur of (i) the six-month anniversary of such separation from service and (ii) the date of the Holder’s death. For purposes of complying with Section 409A of the Code, the Award shall be treated as payable upon the later to occur of (A) the date on which the Award ceases to be subject to a substantial risk of forfeiture and (B) the earliest of (x) the last day of the Performance Period, (y) the Holder’s separation from service and (z) the Holder’s death.
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) or 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, Christine A. Leahy, certify that:
1.I have reviewed this quarterly report on Form 10-Q of the registrant;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| /s/ Christine A. Leahy | ||
| Christine A. Leahy | ||
| President and Chief Executive Officer | ||
| CDW Corporation | ||
| May 5, 2021 | ||
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) or 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, Collin B. Kebo, certify that:
1.I have reviewed this quarterly report on Form 10-Q of the registrant;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| /s/ Collin B. Kebo | ||
| Collin B. Kebo | ||
| Senior Vice President and Chief Financial Officer | ||
| CDW Corporation | ||
| May 5, 2021 | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 18 OF THE UNITED STATES CODE
I, Christine A. Leahy, the chief executive officer of CDW Corporation ("CDW"), certify that (i) the Quarterly Report on Form 10-Q for the three months ended March 31, 2021 (the "10-Q") of CDW fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the 10-Q fairly presents, in all material respects, the financial condition and results of operations of CDW.
| /s/ Christine A. Leahy | ||
| Christine A. Leahy | ||
| President and Chief Executive Officer | ||
| CDW Corporation | ||
| May 5, 2021 | ||
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 18 OF THE UNITED STATES CODE
I, Collin B. Kebo, the chief financial officer of CDW Corporation ("CDW"), certify that (i) the Quarterly Report on Form 10-Q for the three months ended March 31, 2021 (the "10-Q") of CDW fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the 10-Q fairly presents, in all material respects, the financial condition and results of operations of CDW.
| /s/ Collin B. Kebo | ||
| Collin B. Kebo | ||
| Senior Vice President and Chief Financial Officer | ||
| CDW Corporation | ||
| May 5, 2021 | ||