0001402057-20-000124.txt : 20200805 0001402057-20-000124.hdr.sgml : 20200805 20200805160417 ACCESSION NUMBER: 0001402057-20-000124 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 57 CONFORMED PERIOD OF REPORT: 20200630 FILED AS OF DATE: 20200805 DATE AS OF CHANGE: 20200805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDW Corp CENTRAL INDEX KEY: 0001402057 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 260273989 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35985 FILM NUMBER: 201077191 BUSINESS ADDRESS: STREET 1: 200 N MILWAUKEE AVENUE CITY: VERNON HILLS STATE: IL ZIP: 60061 BUSINESS PHONE: 847-465-6000 MAIL ADDRESS: STREET 1: 200 N MILWAUKEE AVENUE CITY: VERNON HILLS STATE: IL ZIP: 60061 FORMER COMPANY: FORMER CONFORMED NAME: VH Holdings, Inc. DATE OF NAME CHANGE: 20070605 10-Q 1 cdw-2020630x10q.htm 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    

Commission File Number 001-35985
CDW CORPORATION
(Exact name of registrant as specified in its charter) 
Delaware
 
26-0273989
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
75 Tri-State International
 

Lincolnshire
,
Illinois
 
60069
(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
Common stock, par value $0.01 per share
CDW
Nasdaq Global Select Market

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:



 
Large accelerated filer
 
  
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 July 31, 2020, there were 142,669,659 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)
 
June 30, 2020
 
December 31, 2019
Assets
(unaudited)
 

Current assets:
 
 
 
Cash and cash equivalents
$
958.4

 
$
154.0

Accounts receivable, net of allowance for credit losses of $30.7 and $7.9, respectively
3,029.0

 
3,002.2

Merchandise inventory
694.8

 
611.2

Miscellaneous receivables
353.9

 
395.1

Prepaid expenses and other
199.7

 
171.6

Total current assets
5,235.8

 
4,334.1

Operating lease right-of-use assets
137.3

 
131.8

Property and equipment, net
326.5

 
363.1

Goodwill
2,532.1

 
2,553.0

Other intangible assets, net
492.9

 
594.1

Other assets
24.9

 
23.3

Total Assets
$
8,749.5

 
$
7,999.4

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable-trade
$
1,809.0

 
$
1,835.0

Accounts payable-inventory financing
479.1

 
429.9

Current maturities of long-term debt
37.9

 
34.1

Contract liabilities
275.4

 
252.2

Accrued expenses and other current liabilities:
 
 

Compensation
163.2

 
212.3

Advertising
145.2

 
147.9

Sales and income taxes
145.4

 
88.6

Other
506.3

 
491.4

Total current liabilities
3,561.5

 
3,491.4

Long-term liabilities:
 
 
 
Debt
3,861.6

 
3,283.2

Deferred income taxes
67.6

 
62.4

Operating lease liabilities
138.0

 
131.1

Other liabilities
65.2

 
71.0

Total long-term liabilities
4,132.4

 
3,547.7

Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value, 100.0 shares authorized; no shares issued or outstanding for both periods

 

Common stock, $0.01 par value, 1,000.0 shares authorized; 142.6 and 143.0 shares outstanding, respectively
1.4

 
1.4

Paid-in capital
3,138.3

 
3,095.3

Accumulated deficit
(1,932.5
)
 
(2,018.6
)
Accumulated other comprehensive loss
(151.6
)
 
(117.8
)
Total stockholders' equity
1,055.6

 
960.3

Total Liabilities and Stockholders' Equity
$
8,749.5

 
$
7,999.4


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 June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Net sales
 
$
4,365.7

 
$
4,629.9

 
$
8,754.9

 
$
8,587.8

Cost of sales
 
3,618.5

 
3,856.1

 
7,251.2

 
7,141.9

Gross profit
 
747.2

 
773.8

 
1,503.7

 
1,445.9

Selling and administrative expenses
 
463.8

 
473.5

 
974.5

 
916.7

Operating income
 
283.4

 
300.3

 
529.2

 
529.2

Interest expense, net
 
(39.7
)
 
(40.5
)
 
(77.6
)
 
(78.8
)
Other income, net
 
1.7

 
1.4

 
5.6

 
2.4

Income before income taxes
 
245.4

 
261.2

 
457.2

 
452.8

Income tax expense
 
(56.3
)
 
(64.6
)
 
(100.2
)
 
(103.3
)
Net income
 
$
189.1

 
$
196.6

 
$
357.0

 
$
349.5

 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
Basic
 
$
1.32

 
$
1.35

 
$
2.50

 
$
2.39

Diluted
 
$
1.31

 
$
1.33

 
$
2.47

 
$
2.35

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
142.4

 
145.7

 
142.5

 
146.3

Diluted
 
144.3

 
148.3

 
144.6

 
148.7


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 June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Net income
 
$
189.1

 
$
196.6

 
$
357.0

 
$
349.5

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized loss from hedge accounting, net of tax
 

 
(4.1
)
 
(0.2
)
 
(12.4
)
Reclassification of hedge accounting loss to net income, net of tax
 
1.4

 
0.2

 
2.5

 
1.7

Foreign currency translation, net of tax
 
6.3

 
(8.0
)
 
(36.1
)
 
1.9

Other comprehensive income (loss)
 
7.7

 
(11.9
)
 
(33.8
)
 
(8.8
)
Comprehensive income
 
$
196.8

 
$
184.7

 
$
323.2

 
$
340.7

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 June 30, 2020
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Loss
 
Total
Stockholders' Equity
Balance as of March 31, 2020
 
142.3

 
$
1.4

 
$
3,114.9

 
$
(2,067.3
)
 
$
(159.3
)
 
$
889.7

Net income
 

 

 

 
189.1

 

 
189.1

Equity-based compensation expense
 

 

 
5.6

 

 

 
5.6

Stock option exercises
 
0.3

 

 
12.7

 

 

 
12.7

Coworker Stock Purchase Plan
 

 

 
4.8

 

 

 
4.8

Dividends paid ($0.380 per share)
 

 

 
0.3

 
(54.3
)
 

 
(54.0
)
Foreign currency translation
 

 

 

 

 
6.3

 
6.3

Reclassification of hedge accounting loss to net income
 

 

 

 

 
1.4

 
1.4

Balance as of June 30, 2020
 
142.6

 
$
1.4

 
$
3,138.3

 
$
(1,932.5
)
 
$
(151.6
)
 
$
1,055.6

 
 
Three Months Ended June 30, 2019
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Loss
 
Total
Stockholders' Equity
Balance as of March 31, 2019
 
146.3

 
$
1.5

 
$
3,025.3

 
$
(1,972.0
)
 
$
(127.5
)
 
$
927.3

Net income
 

 

 

 
196.6

 

 
196.6

Equity-based compensation expense
 

 

 
11.8

 

 

 
11.8

Stock option exercises
 
0.2

 

 
6.0

 

 

 
6.0

Coworker Stock Purchase Plan
 

 

 
4.3

 

 

 
4.3

Repurchases of common stock
 
(1.5
)
 

 

 
(155.1
)
 

 
(155.1
)
Dividends paid ($0.295 per share)
 

 

 
0.2

 
(43.1
)
 

 
(42.9
)
Foreign currency translation
 

 

 

 

 
(8.0
)
 
(8.0
)
Unrealized loss from hedge accounting
 

 

 

 

 
(4.1
)
 
(4.1
)
Reclassification of hedge accounting loss to net income
 

 

 

 

 
0.2

 
0.2

Balance as of June 30, 2019
 
145.0

 
$
1.5

 
$
3,047.6

 
$
(1,973.6
)
 
$
(139.4
)
 
$
936.1


6


CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in millions)
(unaudited)
 
 
Six Months Ended June 30, 2020
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Loss
 
Total
Stockholders' Equity
Balance as of December 31, 2019
 
143.0

 
$
1.4

 
$
3,095.3

 
$
(2,018.6
)
 
$
(117.8
)
 
$
960.3

Net income
 

 

 

 
357.0

 

 
357.0

Equity-based compensation expense
 

 

 
14.4

 

 

 
14.4

Stock option exercises
 
0.7

 

 
19.8

 

 

 
19.8

Coworker Stock Purchase Plan
 

 

 
8.3

 

 

 
8.3

Repurchases of common stock
 
(1.1
)
 

 

 
(140.8
)
 

 
(140.8
)
Dividends paid ($0.760 per share)
 

 

 
0.5

 
(108.7
)
 

 
(108.2
)
Incentive compensation plan stock withheld for taxes
 

 

 

 
(21.9
)
 

 
(21.9
)
Foreign currency translation
 

 

 

 

 
(36.1
)
 
(36.1
)
Unrealized loss from hedge accounting
 

 

 

 

 
(0.2
)
 
(0.2
)
Reclassification of hedge accounting loss to net income
 

 

 

 

 
2.5

 
2.5

Impact of adoption of Topic 326
 

 

 

 
0.5

 

 
0.5

Balance as of June 30, 2020
 
142.6

 
$
1.4

 
$
3,138.3

 
$
(1,932.5
)
 
$
(151.6
)
 
$
1,055.6

 
 
Six Months Ended June 30, 2019
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Loss
 
Total
Stockholders' Equity
Balance as of December 31, 2018
 
147.7

 
$
1.5

 
$
2,996.9

 
$
(1,892.6
)
 
$
(130.6
)
 
$
975.2

Net income
 

 

 

 
349.5

 

 
349.5

Equity-based compensation expense
 

 

 
24.0

 

 

 
24.0

Stock option exercises
 
0.7

 

 
19.0

 

 

 
19.0

Coworker Stock Purchase Plan
 

 

 
7.3

 

 

 
7.3

Repurchases of common stock
 
(3.4
)
 

 

 
(332.2
)
 

 
(332.2
)
Dividends paid ($0.590 per share)
 

 

 
0.4

 
(86.7
)
 

 
(86.3
)
Incentive compensation plan stock withheld for taxes
 

 

 

 
(11.6
)
 

 
(11.6
)
Foreign currency translation
 

 

 

 

 
1.9

 
1.9

Unrealized loss from hedge accounting
 

 

 

 

 
(12.4
)
 
(12.4
)
Reclassification of hedge accounting loss to net income
 

 

 

 

 
1.7

 
1.7

Balance as of June 30, 2019
 
145.0

 
$
1.5

 
$
3,047.6

 
$
(1,973.6
)
 
$
(139.4
)
 
$
936.1

The accompanying notes are an integral part of the Consolidated Financial Statements.

7


CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
 
 
Six Months Ended June 30,
 
 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
Net income
 
$
357.0

 
$
349.5

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
216.6

 
129.3

Equity-based compensation expense
 
14.4

 
24.9

Deferred income taxes
 
7.3

 
(22.5
)
Provision for credit losses
 
27.1

 
1.9

Other
 
6.8

 
4.5

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
(80.4
)
 
(230.1
)
Merchandise inventory
 
(89.3
)
 
(197.3
)
Other assets
 
19.3

 
(109.6
)
Accounts payable-trade
 
(2.1
)
 
414.9

Other liabilities
 
39.1

 
49.0

Net cash provided by operating activities
 
515.8

 
414.5

Cash flows used in investing activities:
 
 
 
 
Capital expenditures
 
(100.0
)
 
(43.9
)
Acquisition of business, net of cash acquired
 

 
(75.0
)
Net cash used in investing activities
 
(100.0
)
 
(118.9
)
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings under revolving credit facility
 
1,024.0

 
891.0

Repayments of borrowings under revolving credit facility
 
(1,025.0
)
 
(815.0
)
Proceeds from issuance of long-term debt
 
600.0

 

Net change in accounts payable-inventory financing
 
52.3

 
36.3

Repurchases of common stock
 
(140.8
)
 
(332.2
)
Payment of incentive compensation plan withholding taxes
 
(21.9
)
 
(11.6
)
Dividend payments
 
(108.3
)
 
(86.3
)
Other
 
14.0

 
12.6

Net cash provided by (used in) financing activities
 
394.3

 
(305.2
)
Effect of exchange rate changes on cash and cash equivalents
 
(5.7
)
 
(1.7
)
Net increase (decrease) in cash and cash equivalents
 
804.4

 
(11.3
)
Cash and cash equivalents—beginning of period
 
154.0

 
205.8

Cash and cash equivalents—end of period
 
$
958.4

 
$
194.5

Supplementary disclosure of cash flow information:
 
 
 
 
Interest paid
 
$
(67.2
)
 
$
(76.0
)
Taxes paid, net
 
$
(21.5
)
 
$
(115.2
)

The accompanying notes are an integral part of the Consolidated Financial Statements.

8

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 market-leading provider of integrated 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 offerings range from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration.
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 June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 (the "Consolidated Financial Statements") have been prepared in conformity with accounting principles generally accepted in the United States of America ("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 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, 2019 (the "December 31, 2019 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, 2019 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 GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances including management’s current assumptions with respect to implications of the COVID-19 pandemic, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and outcomes could differ from those estimates.
The notes to the Consolidated Financial Statements contained in the December 31, 2019 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") 2016-13, Financial Instruments

9

CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)

- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("Topic 326"), there have been no changes to the Company's significant accounting policies and estimates during the six months ended June 30, 2020.
Accounts Receivable
The Company estimates an allowance for credit losses related to accounts receivable for future expected credit losses by using relevant information such as historical information, current conditions, and reasonable and supportable forecasts. The allowance is measured on a pool basis when similar risk characteristics exist, and a loss-rate for each pool is determined using historical credit loss experience as the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current conditions as well as changes in forecasted macroeconomic conditions, such as changes in the unemployment rate or gross domestic product growth rate. The Company has typically experienced a higher loss experience with customers in pools associated within the Corporate, Small Business and Other segments, as compared to the pools associated with the Public segment. During the six months ended June 30, 2020, the Company recognized an allowance of $27 million to reflect the forecasted credit deterioration due to the COVID-19 pandemic, which considered the customer makeup of the Company's pools, the impacts experienced to date and the impacts from the last significant economic downturn in 2008-2009. Due to the higher inherent risk in the pools associated with the Company's Corporate, Small Business, and Other segment, the majority of the additional allowance relates to these segments. As the overall impact and duration of COVID-19 remains uncertain, the Company's estimates and assumptions may evolve as conditions change.
Advertising
Advertising costs are generally charged to expense in the period incurred and recorded in Selling and administrative expenses in the Consolidated Statements of Operations. During the three months ended June 30, 2020 and 2019, the Company had advertising costs of $48 million and $53 million, respectively. During the six months ended June 30, 2020 and 2019, the Company had advertising costs of $93 million and $92 million, respectively.

2.
Recent Accounting Pronouncements
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. 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 was effective upon its 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.
Measurement of Credit Losses on Financial Instruments
On January 1, 2020, the Company adopted and applied Topic 326 using the modified retrospective approach. Topic 326 introduced a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables, which is reflected in the Company’s policies. The adoption of Topic 326, as well as the adjustment to retained earnings for the cumulative effect, was not significant to the Company's Consolidated Financial Statements.

3.
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.

10

CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)

Amounts included in Accounts payable-inventory financing are as follows:
 
 
June 30, 2020
 
December 31, 2019
Revolving Loan inventory financing agreement(1)
 
$
444.8

 
$
379.1

Other inventory financing agreements
 
34.3

 
50.8

Accounts payable-inventory financing
 
$
479.1

 
$
429.9


(1)
The senior secured asset-based revolving credit facility includes an inventory floorplan sub-facility that enables the Company to maintain an inventory financing agreement with a financial intermediary to facilitate the purchase of inventory from certain vendors on more favorable terms than offered directly by the vendors.
4.
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 June 30, 2020 and December 31, 2019, the contract liability balance was $275 million and $252 million, respectively. During the six months ended June 30, 2020 and 2019, the Company recognized revenue of $210 million and $113 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 June 30, 2020 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
 
$
37.2

 
$
19.7

 
$
7.3

 
$
0.2


5.
Financial Instruments
The Company's indebtedness creates interest rate risk on its variable-rate debt. The Company uses derivative financial instruments to manage its exposure to interest rate risk. The Company does not hold or issue derivative financial instruments for trading or speculative purposes.
The Company has interest rate cap agreements that entitle it to payments from the counterparty of the amount, if any, by which three-month London Interbank Offered Rate ("LIBOR") exceeds the strike rates of the caps during the agreement period in exchange for an upfront premium. During 2020, the Company did not enter into interest rate cap agreements.
As of June 30, 2020 and December 31, 2019, the Company had interest rate cap agreements with a fair value of less than $1 million which were classified within Other assets on the Consolidated Balance Sheets. The total notional value of the interest rate cap agreements was $2.8 billion as of June 30, 2020 and December 31, 2019 of which $1.4 billion mature at December 31, 2020 and December 31, 2022, respectively.
The fair values of the Company's interest rate cap agreements are classified as Level 2 in the fair value hierarchy. The valuation of the interest rate cap agreements is derived by using a discounted cash flow analysis on the expected cash receipts that would occur if variable interest rates rise above the strike rates of the caps. This analysis reflects the contractual terms of the interest rate cap agreements, including the period to maturity, and uses observable market-based inputs, including LIBOR curves and implied volatilities. The Company also incorporates insignificant credit valuation adjustments to appropriately reflect the respective counterparty's nonperformance risk in the fair value measurements. The counterparty credit spreads are based on publicly available credit information obtained from a third-party credit data provider. For additional information, see Note 6 (Long-Term Debt).

11

CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise noted)

The interest rate cap agreements are designated as cash flow hedges. The changes in the fair value of derivatives that qualify as cash flow hedges are recorded in Accumulated other comprehensive loss ("AOCL") and are subsequently reclassified into Interest expense in the period when the hedged forecasted transaction affects earnings. The following tables provide the activity in AOCL, net of tax, for the three and six months ended June 30, 2020 and 2019.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Change in fair value recorded to AOCL
 
$

 
$
(4.1
)
 
$
(0.2
)
 
$
(12.4
)
Reclassification from AOCL to Interest expense, net
 
$
1.4

 
$
0.2

 
$
2.5

 
$
1.7


The Company expects to reclassify $6 million from AOCL to earnings within Interest expense, net during the next 12 months.
6.
Long-Term Debt
 
 
 
 
As of June 30, 2020
 
As of December 31, 2019
 
 
Maturity Date
 
Interest Rate
 
Amount
 
Interest Rate
 
Amount
Credit Facilities
 
 
 
 
 
 
 
 
 
 
CDW UK revolving credit facility(1)
 
July 2021
 
%
 
$

 
%
 
$

Senior secured asset-based revolving credit facility
 
March 2022
 
1.438
%
 
50.0

 
5.000
%
 
51.0

Total credit facilities
 
 
 
 
 
50.0

 
 
 
51.0

 
 
 
 
 
 
 
 
 
 
 
Term Loans
 
 
 
 
 
 
 
 
 
 
CDW UK term loan(1)
 
August 2021