CDW CORPORATION 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 toCDW 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 endedDecember 31, 2019 . 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. OverviewCDW Corporation , a Fortune 500 company and member of the S&P 500 Index, is a market-leading provider of integrated information technology ("IT") solutions to small, medium and large business, government, education and healthcare customers in the US, theUK andCanada . Our broad array of offerings ranges from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration. We are technology "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 6,800 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: CDWUK andCDW 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. 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 22
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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
and reconciliations to the most directly comparable US GAAP measure, see
"Results of Operations - Non-GAAP Financial Measure Reconciliations."
Third Quarter Overview
The results of certain business metrics are as follows:
Three Months Ended September 30,
(dollars in millions) 2020 2019
Net sales $ 4,756.4 $ 4,907.7
Gross profit 825.5 816.5
Operating income 317.8 320.6
Net income 193.2 201.7
Non-GAAP operating income 386.3 380.4
Non-GAAP net income 265.4 249.9
Average daily sales(1) 74.3 76.7
Net debt(2) 2,681.4 3,117.5
Cash conversion cycle (in days)(3) 16 17
(1) There were 64 selling days for both the three months endedSeptember 30, 2020 and 2019. (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. 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. •The global spread of the novel coronavirus ("COVID-19") pandemic continues to create significant macroeconomic uncertainty, volatility and disruption. The extent to which the COVID-19 pandemic continues to impact our business, results of operations, cash flows, financial condition and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration, severity and further spread of the outbreak, future resurgences and reimplementation of closures, actions taken to contain the virus or treat its impact and the effectiveness of these actions and how quickly and to what extent normal economic and operating conditions can resume and be sustained. We have mobilized our resources to help ensure the well-being and safety of our coworkers, business continuity, a strong capital position and adequate liquidity. Our efforts have included: •Continued focus on the well-being and safety of our coworkers, leveraging standing crisis management protocols and following guidelines from public health authorities and state and local governments. During the first quarter of 2020, we implemented precautions to help keep our coworkers healthy and safe, including activating a cross-functional response team led by senior leadership, moving to remote work for our office coworkers, and implementing safety protocols at our distribution centers, including social distancing measures, segmented shifts, additional personal protective equipment, enhanced facility cleanings, and temperature screening for anyone entering the facilities. All distribution and configuration centers continue to be operational. Our office coworkers continue to work remotely. 23 -------------------------------------------------------------------------------- Table of Contents •Remote enablement, operations continuity, and security are customer focus areas to manage remote environments at scale and to prepare to be remote longer. Customers are focused on initiatives to reduce costs, optimize resources, and leverage technology for better customer and employee experiences through digital transformation. We have orchestrated solutions by leveraging client devices, accessories, collaboration tools, security, software and cloud offerings to help customers build these capabilities and achieve their objectives. •Increasing our provision for credit losses during the nine months endedSeptember 30, 2020 as a result of the expected economic impact of the COVID-19 pandemic. We continue to monitor cash collections and credit limits of our customers to manage the risk of uncollectible receivables. •Closely monitoring our cost structure relative to the overall demand environment. We have taken measures to enhance liquidity, including completing a$600 million senior notes issuance inApril 2020 , leveraging the lower interest rate environment by refinancing one of our higher interest rate senior notes inAugust 2020 , and implementing cost savings initiatives. We temporarily suspended share repurchases fromMarch 2020 throughOctober 2020 . InNovember 2020 , we announced the resumption of our share repurchase program. •Changes in spending policies, budget priorities and funding levels are a key factor influencing the purchasing levels of Government, Healthcare and Education customers. Given the COVID-19 pandemic, Education customers have prioritized their budgets towards IT spending while Healthcare customer budgets have been pressured. 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. •There continues to be substantial uncertainty regarding the impact of theUK's exit from theEuropean Union ("EU") (referred to as "Brexit"), with theUK /EU future trade deal still being negotiated. Potential adverse consequences of Brexit such as global market uncertainty, volatility in currency exchange rates, greater restrictions on imports and exports betweenUK and EU countries and increased regulatory complexities could have a negative impact on our business, financial condition and results of operations. Prior to the impact of the COVID-19 pandemic, CDWUK had not experienced significant changes in the buying behavior of its customers. We have established a presence inthe Netherlands to support CDWUK's broader growth opportunities in the EU and to help address future developments, as needed, for Brexit. 24 -------------------------------------------------------------------------------- Table of Contents Results of Operations Three Months EndedSeptember 30, 2020 Compared to Three Months EndedSeptember 30, 2019 Results of operations, in dollars and as a percentage of Net sales are as follows: Three Months Ended September 30, 2020 2019 Dollars in Percentage of Dollars in Percentage of Millions Net Sales Millions Net Sales Net sales$ 4,756.4 100.0 %$ 4,907.7 100.0 % Cost of sales 3,930.9 82.6 4,091.2 83.4 Gross profit 825.5 17.4 816.5 16.6 Selling and administrative expenses 507.7 10.7 495.9 10.1 Operating income 317.8 6.7 320.6 6.5 Interest expense, net (40.2) (0.8) (42.3) (0.9) Other expense, net (27.5) (0.6) (17.4) (0.3) Income before income taxes 250.1 5.3 260.9 5.3 Income tax expense (56.9) (1.2) (59.2) (1.2) Net income $ 193.2 4.1 %$ 201.7 4.1 % 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 September 30, 2020 2019 Percentage Percentage Dollar Percent (dollars in millions) Net Sales of
Total
Change(1)
Corporate $ 1,660.0 34.9 % $ 1,913.5 39.0 % $ (253.5) (13.2) %
Small Business 337.0 7.1 386.2 7.9 (49.2) (12.7)
Public:
Government 847.7 17.8 793.4 16.2 54.3 6.8
Education 1,078.2 22.7 807.0 16.4 271.2 33.6
Healthcare 367.9 7.7 500.5 10.2 (132.6) (26.5)
Total Public 2,293.8 48.2 2,100.9 42.8 192.9 9.2
Other 465.6 9.8 507.1 10.3 (41.5) (8.2)
Total Net sales $ 4,756.4 100.0 % $ 4,907.7 100.0 % $ (151.3) (3.1) %
(1)There were 64 selling days for both the three months ended September 30, 2020
and 2019.
Total Net sales for the three months ended September 30, 2020 decreased $151
million , or 3.1%, to $4,756 million , compared to the three months ended
September 30, 2019 . Excluding the impact of foreign currency fluctuations,
constant currency Net sales decreased 3.3%. For additional information, see
"Non-GAAP Financial Measure Reconciliations" below regarding constant currency
Net sales growth.
For the three months ended September 30, 2020 , Net sales decreased across all
major hardware categories, with the exception of notebooks/mobile devices,
compared to the three months ended September 30, 2019 , due to the impact of the
COVID-19 pandemic on customer demand. The Census project contributed to growth
in other hardware, including accessories and smartphones, and services. For
additional information, see Note 10 (Segment Information) to the accompanying
Consolidated Financial Statements.
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Corporate segment Net sales for the three months ended September 30, 2020
decreased $254 million , or 13.2%, compared to the three months ended September
30, 2019 driven by decreases across most major hardware categories, due to the
impact of the COVID-19 pandemic on customer demand, partially offset by an
increase in software.
Small Business segment Net sales for the three months ended September 30, 2020
decreased $49 million , or 12.7%, compared to the three months ended September
30, 2019 driven by decreases across all major hardware categories due to the
impact of the COVID-19 pandemic on customer demand.
Public segment Net sales for the three months ended September 30, 2020 increased
$193 million , or 9.2%, compared to the three months ended September 30, 2019 .
Net sales to Government customers increased 6.8% primarily driven by Other
hardware, including accessories and smartphones, and services as we continued to
deliver on the Census project, as well as notebooks/mobile devices, partially
offset by a decrease in enterprise storage and software. Net sales to Education
customers increased 33.6% primarily driven by notebooks/mobile devices and
related accessories and software, as schools become more enabled for remote
learning. Net sales to Healthcare customers decreased 26.5% primarily driven by
decreases across all major hardware categories as hospitals experienced budget
pressures and delayed projects.
Net sales in Other, which is comprised of results from our UK and Canadian
operations, for the three months ended September 30, 2020 decreased $42 million ,
or 8.2% compared to the three months ended September 30, 2019 . Both operations
declined in local currency due to the impact of the COVID-19 pandemic on
customer demand. The impact of foreign currency exchange increased Other Net
sales by approximately 220 basis points due to the favorable impact of the
British pound to US dollar and unfavorable impact resulting from the Canadian
dollar to US dollar translations.
Gross profit
Gross profit increased $9 million , or 1.1%, to $826 million for the three months
ended September 30, 2020 , compared to $817 million for the three months ended
September 30, 2019 . As a percentage of Net sales, Gross profit margin increased
80 basis points to 17.4% for the three months ended September 30, 2020 . The
increase in Gross profit margin was primarily due to increased product margin
and the mix of netted down revenues that are booked net of cost of goods sold,
primarily software as a service.
Selling and administrative expenses
Selling and administrative expenses increased $12 million , or 2.4%, to $508
million for the three months ended September 30, 2020 , compared to $496 million
for the three months ended September 30, 2019 . The increase was primarily driven
by costs associated with a workforce reduction program. Total coworker count was
9,980, up 137 from 9,843 at September 30, 2019 due to our two most recent
acquisitions.
As a percentage of total Net sales, Selling and administrative expenses
increased 60 basis points to 10.7% during the three months ended September 30,
2020 , compared to 10.1% in the three months ended September 30, 2019 due to
higher payroll expenses as a result of higher coworker count and costs
associated with a workforce reduction program.
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Operating income
Operating income by segment, in dollars and as a percentage of Net sales, and
the year-over-year percentage change are as follows:
Three Months Ended
2020 2019
Dollars in Operating Dollars in Operating Percent Change
Millions Margin Millions Margin inOperating Income Segments:(1) Corporate$ 128.5 7.7 %$ 138.9 7.3 % (7.5) % Small Business 24.3 7.2 27.2 7.0 (10.7) Public 196.1 8.5 168.4 8.0 16.4 Other(2) 18.7 4.0 21.9 4.3 (14.6) Headquarters(3) (49.8) nm* (35.8) nm* (39.1) Total Operating income$ 317.8 6.7 %$ 320.6 6.5 % (0.9) % * Not meaningful (1)Segment operating income includes the segment's direct operating income, allocations for 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, CDWUK andCDW Canada , which do not meet the reportable segment quantitative thresholds. (3)Includes certain Headquarters' function costs that are not allocated to the segments. Operating income was$318 million for the three months endedSeptember 30, 2020 , a decrease of$3 million , or 0.9%, compared to$321 million for the three months endedSeptember 30, 2019 . Operating income decreased primarily due to higher payroll expenses and costs associated with a workforce reduction program, partially offset by higher Gross profit dollars. Total operating margin percentage increased 20 basis points to 6.7% for the three months endedSeptember 30, 2020 , compared to 6.5% for the three months endedSeptember 30, 2019 primarily due to an increase in Gross profit margin, partially offset by higher payroll expenses as a percentage of Net sales and costs associated with a workforce reduction program. Corporate segment Operating income was$129 million for the three months endedSeptember 30, 2020 , a decrease of$10 million , or 7.5%, compared to$139 million for the three months endedSeptember 30, 2019 . Corporate segment Operating income decreased primarily due to lower Gross profit dollars, partially offset by lower sales payroll. Corporate segment operating margin percentage increased 40 basis points to 7.7% for the three months endedSeptember 30, 2020 , compared to 7.3% for the three months endedSeptember 30, 2019 primarily due to higher product margin, partially offset by higher payroll expenses and higher intangible asset amortization as a percentage of Net sales. Small Business segment Operating income was$24 million for the three months endedSeptember 30, 2020 , a decrease of$3 million , or 10.7%, compared to$27 million for the three months endedSeptember 30, 2019 . Small Business segment Operating income decreased primarily due to lower Gross profit dollars, partially offset by lower sales payroll expenses. Small Business segment operating margin percentage increased 20 basis point to 7.2% for the three months endedSeptember 30, 2020 , compared to 7.0% for the three months endedSeptember 30, 2019 primarily due to higher product margin, partially offset by a higher provision for credit losses and higher intangible asset amortization as a percentage of Net sales. Public segment Operating income was$196 million for the three months endedSeptember 30, 2020 , an increase of$28 million , or 16.4%, compared to$168 million for the three months endedSeptember 30, 2019 . Public segment Operating income increased primarily due to higher Gross profit dollars, partially offset by higher sales payroll. Public segment operating margin percentage increased 50 basis points to 8.5% for the three months endedSeptember 30, 2020 , compared to 8.0% for the three months endedSeptember 30, 2019 primarily due to a mix into more profitable product offerings and services and benefits from cost saving measures, such as decreased travel and entertainment, and ongoing productivity and efficiency efforts. Other Operating income was$19 million for the three months endedSeptember 30, 2020 , a decrease of$3 million , or 14.6%, compared to$22 million for the three months endedSeptember 30, 2019 . Other Operating income decreased primarily due to lower Gross profit dollars. Other operating margin percentage decreased 30 basis points to 4.0% for the three months endedSeptember 30, 2020 , compared to 4.3% for the three months endedSeptember 30, 2019 primarily due to higher payroll 27 -------------------------------------------------------------------------------- Table of Contents expenses as a percentage of Net sales and costs associated with a workforce reduction program, partially offset by higher product margin. Income tax expense Income tax expense was$57 million and$59 million for the three months endedSeptember 30, 2020 and 2019, respectively. The effective income tax rate, expressed by calculating the income tax expense as a percentage of Income before income taxes, was 22.7% for both the three months endedSeptember 30, 2020 and 2019. The effective tax rate differed from the US statutory rate of 21.0% for three months endedSeptember 30, 2020 primarily due to state and local income taxes and a discrete deferred tax expense as a result of an increase in theUK corporate tax rate, partially offset by excess tax benefits on equity-based compensation. The effective tax rate differed from the US statutory rate of 21.0% for the three months endedSeptember 30, 2019 primarily due to state and local income taxes, partially offset by excess tax benefits on equity-based compensation. The effective tax rate was the same for the three months endedSeptember 30, 2020 and 2019. The effective tax rate for the three months endedSeptember 30, 2020 had a discrete deferred tax expense to reflect the increase in theUK corporate tax rate and lower excess tax benefits on equity compensation as compared to the same period of the prior year, the impacts of which were offset by a discrete benefit from a state tax refund claim, lower global intangible low-taxed income ("GILTI") and lower non-deductible expenses as compared to the same period of the prior year. 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 endedSeptember 30, 2020 and 2019 below. Non-GAAP operating income excludes, among other things, charges related to the amortization of acquisition-related intangible assets, equity-based compensation and the associated payroll taxes, a workforce reduction program, and acquisition and integration expenses. Non-GAAP operating income margin is defined as Non-GAAP operating income as a percentage of Net sales. Non-GAAP income before income taxes and Non-GAAP net income exclude, among other things, charges related to acquisition-related intangible asset amortization, equity-based compensation, net loss on extinguishment of long-term debt, a workforce reduction program, acquisition and integration expenses, and the associated tax effects of each. Net sales growth on a constant currency basis is defined as Net sales growth excluding the impact of foreign currency translation on Net sales compared to the prior period. Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP income before income taxes, Non-GAAP net income and Net sales growth on a constant currency basis are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance or financial position that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with US GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures. We believe these measures provide analysts, investors and management with helpful information regarding the underlying operating performance of our business, as they remove the impact of items that management believes are not reflective of underlying operating performance. Management uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business. 28 -------------------------------------------------------------------------------- Table of Contents Non-GAAP operating income Non-GAAP operating income was$386 million for the three months endedSeptember 30, 2020 , an increase of$6 million , or 1.5%, compared to$380 million for the three months endedSeptember 30, 2019 . As a percentage of Net sales, Non-GAAP operating income was 8.1% and 7.8% for the three months endedSeptember 30, 2020 and 2019, respectively. Three Months Ended September 30, (dollars in millions) 2020 2019 Operating income$ 317.8 $ 320.6 Amortization of intangibles(1) 44.9 44.6 Equity-based compensation 11.5 12.8 Workforce reduction charges 8.5 - Other adjustments(2) 3.6 2.4 Non-GAAP operating income$ 386.3 $ 380.4 Non-GAAP operating income margin 8.1 %
7.8 %
(1)Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names. (2)Includes other expenses such as payroll taxes on equity-based compensation, expenses related to the relocation of the downtownChicago office, and acquisition and integration expenses. Non-GAAP net income Non-GAAP net income was$265 million for the three months endedSeptember 30, 2020 , an increase of$15.0 million , or 6.2%, compared to$250 million for the three months endedSeptember 30, 2019 . Three Months Ended September 30, 2020 2019 Income before Income tax Net income Income before Income tax Net income (in millions) income taxes expense(1) income taxes expense(1) US GAAP (as reported)$ 250.1 $ (56.9) $ 193.2 $ 260.9 $ (59.2) $ 201.7 Amortization of intangibles(2) 44.9 (8.6) 36.3 44.6 (11.3) 33.3 Equity-based compensation 11.5 (5.1) 6.4 12.8 (11.8) 1.0 Net loss on extinguishment of long-term debt 27.3 (6.8) 20.5 16.1 (4.0) 12.1 Workforce reduction charges 8.5 (2.1) 6.4 - - - Other adjustments(3) 3.6 (1.0) 2.6 2.4 (0.6) 1.8 Non-GAAP$ 345.9 $ (80.5) $ 265.4 $ 336.8 $ (86.9) $ 249.9 (1)Income tax on non-GAAP adjustments includes excess tax benefits associated with equity-based compensation. (2)Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names. (3)Includes other expenses such as payroll taxes on equity-based compensation, expenses related to the relocation of the downtownChicago office, and acquisition and integration expenses. 29 -------------------------------------------------------------------------------- Table of Contents Net sales growth on a constant currency basis Net sales decreased$151 million , or 3.1%, to$4,756 million for the three months endedSeptember 30, 2020 , compared to$4,908 million for the three months endedSeptember 30, 2019 . Net sales on a constant currency basis, which excludes the impact of foreign currency translation, decreased$164 million , or 3.3%. Three Months Ended September 30, (dollars in millions) 2020 2019 % Change(1) Net sales, as reported$ 4,756.4 $ 4,907.7 (3.1) % Foreign currency translation(2) - 12.8 Net sales, on a constant currency basis$ 4,756.4 $ 4,920.5 (3.3) % (1)There were 64 selling days for both the three months endedSeptember 30, 2020 and 2019. (2)Represents the effect of translating the prior year results of CDWUK andCDW Canada at the average exchange rates applicable in the current year. Nine Months Overview The results of certain business metrics are as follows: Nine Months Ended September 30, (dollars in millions) 2020 2019 Net sales$ 13,511.3 $ 13,495.5 Gross profit 2,329.2 2,262.4 Operating income 847.0 849.8 Net income 550.2 551.2 Non-GAAP operating income 1,028.4 1,026.1 Non-GAAP net income 690.7 673.0 Average daily sales(1) 70.4 70.7 Net debt(2) 2,681.4 3,117.5 Cash conversion cycle (in days)(3) 16
17
(1) There were 192 and 191 selling days for the nine months endedSeptember 30, 2020 and 2019, 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. 30 -------------------------------------------------------------------------------- Table of Contents Results of Operations Nine Months EndedSeptember 30, 2020 Compared to Nine Months EndedSeptember 30, 2019 Results of operations, in dollars and as a percentage of Net sales are as follows: Nine Months Ended September 30, 2020 2019 Dollars in Percentage of Dollars in Percentage of Millions Net Sales Millions Net Sales Net sales$ 13,511.3 100.0 %$ 13,495.5 100.0 % Cost of sales 11,182.1 82.8 11,233.1 83.2 Gross profit 2,329.2 17.2 2,262.4 16.8 Selling and administrative expenses 1,482.2 11.0 1,412.6 10.5 Operating income 847.0 6.3 849.8 6.3 Interest expense, net (117.8) (0.9) (121.1) (0.9) Other expense, net (21.9) (0.1) (15.0) (0.1) Income before income taxes 707.3 5.3 713.7 5.3 Income tax expense (157.1) (1.2) (162.5) (1.2) Net income $ 550.2 4.1 %$ 551.2 4.1 % 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: Nine Months Ended September 30, 2020 2019 Average Daily Percentage Percentage Dollar Percent Sales Percent (dollars in millions) Net Sales of Total Net Sales Net Sales of Total Net Sales Change Change Change(1) Corporate$ 5,128.5 38.0 %$ 5,533.6 41.0 %$ (405.1) (7.3) % (7.8) % Small Business 1,030.6 7.6 1,119.2 8.3 (88.6) (7.9) (8.4) Public: Government 2,135.9 15.8 1,860.2 13.8 275.7 14.8 14.2 Education 2,431.2 18.0 1,981.0 14.7 450.2 22.7 22.1 Healthcare 1,274.1 9.4 1,430.5 10.6 (156.4) (10.9) (11.4) Total Public 5,841.2 43.2 5,271.7 39.1 569.5 10.8 10.2 Other 1,511.0 11.2 1,571.0 11.6 (60.0) (3.8) (4.3) Total Net sales$ 13,511.3 100.0 %$ 13,495.5 100.0 %$ 15.8 0.1 % (0.4) % (1)There were 192 and 191 selling days for the nine months endedSeptember 30, 2020 and 2019, respectively. Total Net sales for the nine months endedSeptember 30, 2020 increased$16 million to$13,511 million , compared to the nine months endedSeptember 30, 2019 . There was one more selling day in the nine months endedSeptember 30, 2020 compared to the same period of 2019. For additional information, see "Non-GAAP Financial Measure Reconciliations" below regarding constant currency Net sales growth. For the nine months endedSeptember 30, 2020 , Net sales grew in notebooks/mobile devices from robust customer demand for remote enablement in response to the COVID-19 pandemic. The Census project further contributed to growth in other hardware, including accessories and smartphones, and services. These increases were nearly fully offset by decreases in all 31 -------------------------------------------------------------------------------- Table of Contents other hardware categories due to the impact of the COVID-19 pandemic on customer demand. For additional information, see Note 10 (Segment Information) to the accompanying Consolidated Financial Statements. Corporate segment Net sales for the nine months endedSeptember 30, 2020 decreased$405 million , or 7.3%, compared to the nine months endedSeptember 30, 2019 . On an average daily sales basis, Corporate segment Net sales decreased 7.8%. The decrease was primarily driven by all hardware categories, partially offset by increases in software and services. Small Business segment Net sales for the nine months endedSeptember 30, 2020 decreased$89 million , or 7.9%, compared to the nine months endedSeptember 30, 2019 . On an average daily sales basis, Small Business segment Net sales decreased 8.4%. The decrease was driven by all hardware categories. Public segment Net sales for the nine months endedSeptember 30, 2020 increased$570 million , or 10.8%, compared to the nine months endedSeptember 30, 2019 . On an average daily sales basis, Public segment Net sales increased 10.2%. Net sales to Education customers increased 22.1% on an average daily sales basis, primarily driven by notebooks/mobile devices as schools become more enabled for remote learning. Net sales to Government customers increased 14.2% on an average daily sales basis primarily driven by notebooks/mobile devices and the continued delivery on the Census project within other hardware, including accessories and smartphones, and services. Net sales to Healthcare customers decreased 11.4% on an average daily sales basis, primarily driven by all categories with the exception of notebooks/mobile devices as hospitals experienced budget pressures and delayed projects. Net sales in Other, which is comprised of results from ourUK and Canadian operations, for the nine months endedSeptember 30, 2020 decreased$60 million , or 3.8%, compared to the nine months endedSeptember 30, 2019 . On an average daily sales basis, Other decreased 4.3%. Net sales for Canadian operations decreased across all hardware categories, with the exception of notebooks/mobile devices. Net sales forUK operations increased primarily driven by notebooks/mobile devices and software, partially offset by all other hardware categories. The impact of foreign currency exchange further decreased Other Net sales by approximately 90 basis points, primarily due to the unfavorable translation of the Canadian dollar and British pound to the US dollar. Gross profit Gross profit increased$67 million , or 3.0%, to$2,329 million for the nine months endedSeptember 30, 2020 , compared to$2,262 million for the nine months endedSeptember 30, 2019 . As a percentage of Net sales, Gross profit margin increased 50 basis points to 17.2% for the nine months endedSeptember 30, 2020 . Gross profit margin was positively impacted by product margin and by the mix of netted down revenues that are booked net of cost of goods sold, primarily software as a service. Selling and administrative expenses Selling and administrative expenses increased$70 million , or 4.9%, to$1,482 million for the nine months endedSeptember 30, 2020 , compared to$1,413 million for the nine months endedSeptember 30, 2019 . The increase was primarily due to higher payroll expenses consistent with higher coworker count and higher Gross profit and a higher provision for credit losses driven by a$30 million increase in reserves, which predominately reflects the expected economic impact of the COVID-19 pandemic. Total coworker count was 9,980, up 137 from 9,843 atSeptember 30, 2019 due to our two most recent acquisitions. As a percentage of Net sales, Selling and administrative expenses increased 50 basis points to 11.0% during the nine months endedSeptember 30, 2020 , compared to 10.5% for the nine months endedSeptember 30, 2019 , due to higher payroll expenses and a higher provision for credit losses. 32 -------------------------------------------------------------------------------- Table of Contents 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:
Nine Months Ended
2020 2019
Percent Change
Dollars in Operating Dollars in Operating in Operating
Millions Margin Millions Margin Income
Segments:(1)
Corporate $ 378.9 7.4 % $ 430.8 7.8 % (12.0) %
Small Business 72.6 7.0 78.2 7.0 (7.2)
Public 468.4 8.0 373.9 7.1 25.3
Other(2) 49.9 3.3 66.6 4.2 (25.1)
Headquarters(3) (122.8) nm* (99.7) nm* (23.2)
Total Operating income $ 847.0 6.3 % $ 849.8 6.3 % (0.3) %
* 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.
Operating income was $847 million for the nine months ended September 30, 2020 ,
a decrease of $3 million , or 0.3%, compared to $850 million for the nine months
ended September 30, 2019 . Operating income decreased primarily due to higher
payroll expenses and a higher provision for credit losses, partially offset by
higher Gross profit dollars. Total operating margin percentage remained flat at
6.3% for both the nine months ended September 30, 2020 and 2019 primarily due
higher Gross profit margin, offset by higher payroll expenses and a higher
provision for credit losses as percentage of Net sales.
Corporate segment Operating income was $379 million for the nine months ended
September 30, 2020 , a decrease of $52 million , or 12.0%, compared to $431
million for the nine months ended September 30, 2019 . Corporate segment
Operating income decreased primarily due to lower Gross profit dollars and a
higher provision for credit losses, partially offset by lower payroll expenses.
Corporate segment operating margin percentage decreased 40 basis points to 7.4%
for the nine months ended September 30, 2020 , from 7.8% for the nine months
ended September 30, 2019 primarily due to a higher provision for credit losses
and higher payroll expenses as a percentage of Net sales, partially offset by
higher product margin.
Small Business segment Operating income was $73 million for the nine months
ended September 30, 2020 , a decrease of $6 million , or 7.2%, compared to $78
million for the nine months ended September 30, 2019 . Small Business segment
Operating income decreased primarily due to lower Gross profit dollars and a
higher provision for credit losses, partially offset by lower sales payroll
expenses. Small Business segment operating margin percentage remained flat at
7.0% for both the nine months ended September 30, 2020 and 2019.
Public segment Operating income was $468 million for the nine months ended
September 30, 2020 , an increase of $94 million , or 25.3%, compared to $374
million for the nine months ended September 30, 2019 . Public segment Operating
income increased primarily due to higher Gross profit dollars, partially offset
by higher sales payroll expenses. Public segment operating margin percentage
increased 90 basis points to 8.0% for the nine months ended September 30, 2020 ,
from 7.1% for the nine months ended September 30, 2019 primarily due to a mix
into more profitable product offerings and services.
Other Operating income was $50 million for the nine months ended September 30,
2020 , a decrease of $17 million , or 25.1%, compared to $67 million for the nine
months ended September 30, 2019 . Other Operating income decreased primarily due
to lower Gross profit dollars, higher payroll expenses and a higher provision
for credit losses. Other operating margin percentage decreased 90 basis points
to 3.3% for the nine months ended September 30, 2020 , from 4.2% for the nine
months ended September 30, 2019 primarily due to higher payroll expenses and a
higher provision for credit losses as a percentage of Net sales, partially
offset by higher product margin.
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Income tax expense
Income tax expense was $157 million and $163 million for the nine months ended
September 30, 2020 and 2019, respectively. The effective tax rate, expressed by
calculating the income tax expense as a percentage of Income before income
taxes, was 22.2% for the nine months ended September 30, 2020 and differed from
the US federal statutory rate of 21.0% with state and local income taxes and a
discrete deferred tax expense as a result of an increase in the UK corporate tax
rate being largely offset by excess tax benefits on equity-based compensation.
The effective income tax rate for the nine months ended September 30, 2019 was
22.8% and differed from the US federal statutory rate of 21.0% primarily due to
state and local income taxes partially offset by excess tax benefits on
equity-based compensation and a discrete tax benefit related to CDW Canada's
acquisition of Scalar in 2019.
The decrease in the effective tax rate for the nine months ended September 30,
2020 as compared to the same period of the prior year was primarily due to a
discrete benefit from a state tax refund claim, lower GILTI and lower
non-deductible expenses as compared to the same period of the prior year,
partially offset by a discrete deferred tax expense as a result of an increase
in the UK corporate tax rate and a discrete tax benefit related to CDW Canada's
acquisition of Scalar in 2019.
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 nine months
ended September 30, 2020 and 2019 below.
Non-GAAP operating income
Non-GAAP operating income was $1,028 million for the nine months ended September
30, 2020 , an increase of $2 million , or 0.2%, compared to $1,026 million for the
nine months ended September 30, 2019 . As a percentage of Net sales, Non-GAAP
operating income was 7.6% for both the nine months ended September 30, 2020 and
2019.
Nine Months Ended September 30,
(dollars in millions) 2020 2019
Operating income $ 847.0 $ 849.8
Amortization of intangibles(1) 133.9 133.7
Equity-based compensation 25.9 37.7
Workforce reduction charges 8.5 -
Other adjustments(2) 13.1 4.9
Non-GAAP operating income $ 1,028.4 $ 1,026.1
Non-GAAP operating income margin 7.6 % 7.6 %
(1)Includes amortization expense for acquisition-related intangible assets,
primarily customer relationships, customer contracts and trade names.
(2)Includes other expenses such as payroll taxes on equity-based compensation,
expenses related to the relocation of the downtown
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Non-GAAP net income
Non-GAAP net income was $691 million for the nine months ended September 30,
2020 , an increase of $18 million , or 2.6%, compared to $673 million for the nine
months ended September 30, 2019 .
Nine Months Ended September 30,
2020 2019
Income before Income tax Net income Income before Income tax Net income
(dollars in millions) income taxes expense(1) income taxes expense(1)
US GAAP (as reported) $ 707.3 $ (157.1) $ 550.2 $ 713.7 $ (162.5) $ 551.2
Amortization of intangibles(2) 133.9 (30.8) 103.1 133.7 (33.8) 99.9
Equity-based compensation 25.9 (25.2) 0.7 37.7 (28.7) 9.0
Net loss on extinguishment of
long-term debt 27.3 (6.8) 20.5 16.1 (4.0) 12.1
Workforce reduction charges 8.5 (2.1) 6.4 - - -
Other adjustments(3) 13.1 (3.3) 9.8 4.9 (4.1) 0.8
Non-GAAP $ 916.0 $ (225.3) $ 690.7 $ 906.1 $ (233.1) $ 673.0
(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 payroll taxes on equity-based compensation,
expenses related to the relocation of the downtown Chicago office, and
acquisition and integration expenses.
Net sales growth on a constant currency basis
Net sales increased $15 million , or 0.1%, to $13,511 million for the nine months
ended September 30, 2020 , compared to $13,496 million for the nine months ended
September 30, 2019 . Net sales on a constant currency basis, which excludes the
impact of foreign currency translation, increased $30 million , or 0.2%.
Nine Months Ended
Average Daily %
(dollars in millions) 2020 2019 % Change Change(1)
Net sales, as reported $ 13,511.3 $ 13,495.5 0.1 % (0.4) %
Foreign currency translation(2) - (14.9)
Net sales, on a constant currency basis$ 13,511.3 $ 13,480.6 0.2 % (0.3) % (1)There were 192 and 191 selling days for the nine months endedSeptember 30, 2020 and 2019, respectively. (2)Represents the effect of translating the prior year results of CDWUK andCDW 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. 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 ofSeptember 30, 2020 , we had$856 million of availability for borrowings under our senior secured asset-based revolving credit facility and an additional £50 million ($65 million ) under the CDWUK revolving credit facility. Our liquidity and borrowing plans are established to align with our financial and strategic planning processes and ensure we 35 -------------------------------------------------------------------------------- Table of Contents have the necessary funding to meet our operating commitments, which primarily include the purchase of inventory, payroll and general expenses. We also take into consideration our overall capital allocation strategy, which includes investment for future growth, dividend payments, acquisitions and share repurchases. During 2020, we bolstered our liquidity position by completing a$600 million senior notes issuance inApril 2020 and leveraging the lower interest rate environment by refinancing one of our higher interest rate senior notes inAugust 2020 . We also temporarily suspended share repurchases fromMarch 2020 throughOctober 2020 . InNovember 2020 , we announced the resumption of our share repurchase program. We took additional measures to enhance our liquidity by implementing various cost savings initiatives. We believe we have adequate sources of liquidity and funding available for at least the next year; however, there are a number of factors that may negatively impact our available sources of funds. The amount of cash generated from operations will be dependent upon factors such as the successful execution of our business plan, general economic conditions and working capital management, including accounts receivable. Long-Term Debt and Financing Arrangements OnApril 21, 2020 , we completed the issuance of$600 million aggregate principal amount of 4.125% Senior Notes dueMay 2025 at par. OnAugust 13, 2020 , we completed the refinance of$600 million aggregate principal amount of 5.000% Senior Notes dueSeptember 2025 through the issuance of$700 million aggregate principal amount of 3.250% Senior Notes due 2029 at par. As ofSeptember 30, 2020 , we had total indebtedness of$3.9 billion , of which$1.5 billion was secured indebtedness. AtSeptember 30, 2020 , we were in compliance with the covenants under our various credit agreements and indentures. For additional information regarding our debt and refinancing activities, see Note 6 (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 3 (Inventory Financing Agreements) to the accompanying Consolidated Financial Statements. Share Repurchase Program During the first quarter of 2020, we repurchased 1.1 million shares of our common stock for$141 million under the previously announced share repurchase program. InMarch 2020 , we elected to temporarily suspend share repurchases as a precautionary measure in light of the COVID-19 pandemic. We made no share purchases during the second and third quarters of 2020. InNovember 2020 , we announced the resumption of our share repurchase program. For additional information on our share repurchase program, see "Part II, Item 2, Unregistered Sales ofEquity Securities and Use of Proceeds." Dividends A summary of 2020 dividend activity for our common stock is as follows: Dividend Amount Declaration Date Record Date Payment Date$0.380 February 6, 2020 February 25, 2020 March 10, 2020$0.380 May 6, 2020 May 25, 2020 June 10, 2020$0.380 August 4, 2020 August 25, 2020 September 10, 2020 OnNovember 2, 2020 , we announced that our Board of Directors declared a quarterly cash dividend of$0.400 per common share. The dividend will be paid onDecember 10, 2020 to all stockholders of record as of the close of business onNovember 25, 2020 . The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, business prospects, capital requirements, contractual restrictions, any potential indebtedness we may incur, restrictions imposed by applicable law, tax considerations and other factors that our Board of Directors deems relevant. In addition, our ability to pay dividends on our common stock will be limited by restrictions on our ability to pay dividends or make distributions to our stockholders and on the ability of our subsidiaries to pay dividends or make distributions to us, in each case, under the terms of our current and any future agreements governing our indebtedness. 36 -------------------------------------------------------------------------------- Table of Contents Coronavirus Aid, Relief, and Economic Security Act OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted into law. The primary impact to our financial statements as a result of the CARES Act was the deferral of US corporate income tax payments from the second quarter of 2020 toJuly 2020 as well as the deferral of employer related payroll tax payments from the second, third and fourth quarters of 2020 with 50% to be paid in the fourth quarter of 2021 and the remaining 50% to be paid in the fourth quarter of 2022. Cash Flows Cash flows from operating, investing and financing activities are as follows: Nine Months Ended September 30, (dollars in millions) 2020 2019 Net cash provided by (used in): Operating activities$ 738.4 $ 682.3 Investing activities (172.1) (150.0) Net change in accounts payable-inventory financing 232.5 (17.4) Other financing activities 299.2 (551.1) Financing activities 531.7 (568.5) Effect of exchange rate changes on cash and cash equivalents (2.5) (2.7) Net increase (decrease) in cash and cash equivalents $
1,095.5
Operating Activities
Cash flows from operating activities are as follows:
Nine Months Ended September 30,
(dollars in millions) 2020 2019 Change
Net income $ 550.2 $ 551.2 $ (1.0)
Adjustments for the impact of non-cash items(1) 441.3 226.9 214.4
Net income adjusted for the impact of non-cash
items(2) 991.5 778.1 213.4
Changes in assets and liabilities:
Accounts receivable(3) (304.9) (171.8) (133.1) Merchandise inventory(4) (34.2) (151.1) 116.9 Accounts payable-trade(5) 106.8 264.0 (157.2) Other(6) (20.8) (36.9) 16.1 Net cash provided by operating activities$ 738.4
(1)Includes items such as depreciation and amortization, deferred income taxes,
provision for credit losses and equity-based compensation expense.
(2)The change is due to stronger operating results driven by Gross profit growth
and higher depreciation and amortization.
(3)The change is primarily driven by mixing into customers with longer payment
cycles, customers taking longer to pay due to the current economic environment
and favorable timing of collections in 2019.
(4)The change is primarily due to lower growth in inventory balances, partially
offset by higher customer-driven stocking positions in 2020 compared to 2019.
(5)The change is primarily due to lower growth in sales in 2020 compared to
2019.
(6)The change is primarily driven by improved collection performance and a lower
balance of our receivables from vendors, partially offset by reduced contract
liabilities.
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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:
September 30,
(in days) 2020 2019
Days of sales outstanding (DSO)(1) 61 56
Days of supply in inventory (DIO)(2) 13 13
Days of purchases outstanding (DPO)(3) (58) (52)
Cash conversion cycle 16 17
(1)Represents the rolling three-month average of the balance of Accounts
receivable, net at the end of the period, divided by average daily Net sales for
the same three-month period. Also incorporates components of other miscellaneous
receivables.
(2)Represents the rolling three-month average of the balance of Merchandise
inventory at the end of the period divided by average daily Cost of sales for
the same three-month period.
(3)Represents the rolling three-month average of the combined balance of
Accounts payable-trade, excluding cash overdrafts, and Accounts
payable-inventory financing at the end of the period divided by average daily
Cost of sales for the same three-month period.
The cash conversion cycle decreased to 16 days at September 30, 2020 , compared
to 17 days at September 30, 2019 . DSO and DPO increased 5 days and 6 days,
respectively. The increase in DSO was primarily driven by a greater impact of
third-party services, such as software as a service and warranties, and higher
receivable balances due to mixing into customers with longer payment cycles and
customers generally taking longer to pay due to the current economic
environment. These third-party services and mixing into vendors with extended
payment terms drove DPO higher.
Investing Activities
Net cash used in investing activities increased $22 million in the nine months
ended September 30, 2020 compared to September 30, 2019 . This increase was
primarily due to increased Capital expenditures of $59 million , primarily due to
purchases of devices for the Census project, and the acquisition of IGNW on July
1, 2020 , partially offset by the acquisition of Scalar in 2019.
Financing Activities
Net cash provided by financing activities increased $1.1 billion in the nine
months ended September 30, 2020 compared to September 30, 2019 . The increase was
primarily driven by the $600 million debt offering completed in April 2020 ,
refinancing a series of senior notes in August 2020 , lower share repurchases and
increased volume through our inventory financing arrangements, partially offset
by decreased borrowings under our revolving credit facilities and higher
dividend payments. For additional information regarding the inventory financing
agreements and debt activities, see Note 3 (Inventory Financing Agreements) and
Note 6 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
Contractual Obligations
Except as disclosed above under "Long-Term Debt and Financing Arrangements,"
there have been no material changes to our contractual obligations from those
reported in our Annual Report on Form 10-K for the year ended December 31, 2019 .
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a material current or future effect on our financial condition, results of
operations, liquidity, capital expenditures or capital resources.
Issuers and Guarantors of Debt Securities
On March 2, 2020 , the SEC adopted final rules that amend the financial
disclosure requirements for subsidiary issuers and guarantors of registered debt
securities in Rule 3-10 of Regulation S-X. Although the disclosures required by
the amendments do not become mandatory until January 4, 2021 , voluntary early
compliance is permitted. We have elected to voluntarily comply beginning with
the quarterly period ended March 31, 2020 .
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Table of Contents Each series of our outstanding unsecured senior notes (the "Notes") are issued byCDW LLC andCDW Finance Corporation (the "Issuers") and are guaranteed byCDW Corporation ("Parent") and each ofCDW LLC's direct and indirect, 100% owned, domestic subsidiaries (the "Guarantor Subsidiaries" and, together with Parent, the "Guarantors"). All guarantees by Parent and the Guarantors are joint and several, and full and unconditional; provided that guarantees by the Guarantor Subsidiaries are subject to certain customary release provisions contained in the indentures governing the Notes. The Notes and the related guarantees are the Issuers' and the Guarantors' senior unsecured obligations and are: •structurally subordinated to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries and; •rank equal in right of payment with all of the Issuers' and the Guarantors' existing and future unsecured senior debt. The following tables set forth Balance Sheet information as ofSeptember 30, 2020 andDecember 31, 2019 , and Statement of Operations information for the nine months endedSeptember 30, 2020 and for the year endedDecember 31, 2019 . The financial information includes the accounts of the Issuers and the accounts of the Guarantors (the "Obligor Group "). The financial information of theObligor Group is presented on a combined basis and the intercompany balances and transactions between theObligor Group have been eliminated.
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