cdw-20220630

0001402057-22-000121.txt : 20220803 0001402057-22-000121.hdr.sgml : 20220803 20220803163145 ACCESSION NUMBER: 0001402057-22-000121 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 60 CONFORMED PERIOD OF REPORT: 20220630 FILED AS OF DATE: 20220803 DATE AS OF CHANGE: 20220803 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: 221133140 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-20220630.htm 10-Q cdw-20220630

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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, 2022

☐ 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

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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 29, 2022, there were 135,243,234 shares of common stock, $0.01 par value, outstanding.

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CDW CORPORATION AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of June 3 0 , 2022 and December 31, 2021	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 3 0 , 2022 and 2021	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 3 0 , 2022 and 2021	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2022 and 2021	6
	Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 3 0 , 2022 and 2021	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
SIGNATURES		42

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements


CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in millions, except per share amounts)
	June 30, 2022		December 31, 2021
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	541.6	$	258.1
Accounts receivable, net of allowance for credit losses of $22.9 and $20.4, respectively	4,474.8		4,499.4
Merchandise inventory	1,020.1		927.6
Miscellaneous receivables	463.7		435.5
Prepaid expenses and other	539.6		357.5
Total current assets	7,039.8		6,478.1
Operating lease right-of-use assets	154.5		155.6
Property and equipment, net	194.7		195.8
Goodwill	4,369.6		4,382.9
Other intangible assets, net	1,556.6		1,628.1
Other assets	337.9		358.9
Total Assets	$	13,653.1	$	13,199.4
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable-trade	$	3,315.6	$	3,114.2
Accounts payable-inventory financing	453.1		448.3
Current maturities of long-term debt	105.5		102.7
Contract liabilities	431.3		402.9
Accrued expenses and other current liabilities:
Compensation	381.1		361.7
Advertising	171.1		145.5
Sales and income taxes	70.7		65.9
Other	487.2		454.8
Total current liabilities	5,415.6		5,096.0
Long-term liabilities:
Debt	6,481.4		6,755.8
Deferred income taxes	214.9		222.3
Operating lease liabilities	179.3		184.2
Other liabilities	255.7		235.4
Total long-term liabilities	7,131.3		7,397.7
Commitments and contingencies
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; 135.2 and 134.8 shares outstanding, respectively	1.4		1.3
Paid-in capital	3,441.8		3,369.5
Accumulated deficit	(2,197.7)		(2,570.7)
Accumulated other comprehensive loss	(139.3)		(94.4)
Total stockholders’ equity	1,106.2		705.7
Total Liabilities and Stockholders’ Equity	$	13,653.1	$	13,199.4

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

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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,
	2022		2021		2022		2021
Net sales	$	6,145.8	$	5,146.4	$	12,094.9	$	9,983.9
Cost of sales	4,977.6		4,263.6		9,822.6		8,305.9
Gross profit	1,168.2		882.8		2,272.3		1,678.0
Selling and administrative expenses	732.9		512.9		1,450.1		984.7
Operating income	435.3		369.9		822.2		693.3
Interest expense, net	(57.7)		(35.5)		(113.7)		(71.1)
Other (expense) income, net	(0.4)		36.8		(0.9)		37.9
Income before income taxes	377.2		371.2		707.6		660.1
Income tax expense	(97.9)		(97.1)		(178.1)		(153.4)
Net income	$	279.3	$	274.1	$	529.5	$	506.7

Net income per common share:
Basic	$	2.07	$	1.96	$	3.92	$	3.60
Diluted	$	2.04	$	1.93	$	3.87	$	3.56

Weighted-average common shares outstanding:
Basic	135.2		139.8		135.1		140.6
Diluted	136.8		141.7		136.8		142.4

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

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CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in millions) (unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	279.3	$	274.1	$	529.5	$	506.7
Other comprehensive income:
Unrealized gain from cash flow hedge, net of tax	1.0		—		1.4		—
Reclassification of cash flow hedge loss to net income, net of tax	0.8		0.6		1.6		1.0
Foreign currency translation, net of tax	(38.0)		5.3		(47.9)		11.6
Other comprehensive income (loss)	(36.2)		5.9		(44.9)		12.6
Comprehensive income	$	243.1	$	280.0	$	484.6	$	519.3

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

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CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions) (unaudited)
	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net income	$	529.5	$	506.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	142.5		91.8
Equity-based compensation expense	44.6		36.4
Deferred income taxes	(8.6)		(3.1)
Provision for credit losses	3.7		(6.0)
Other	9.1		(31.0)
Changes in assets and liabilities:
Accounts receivable	(19.8)		(140.5)
Merchandise inventory	(109.7)		(127.9)
Other assets	(177.2)		(74.0)
Accounts payable-trade	210.6		107.5
Other liabilities	136.4		(15.0)
Net cash provided by operating activities	761.1		344.9
Cash flows from investing activities:
Capital expenditures	(63.6)		(38.5)
Acquisitions of businesses, net of cash acquired	(28.0)		(211.6)
Proceeds from the sale of equity method investment	—		36.0
Net cash used in investing activities	(91.6)		(214.1)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility	1,479.6		56.5
Repayments of borrowings under revolving credit facility	(1,672.5)		—

Repayments of long-term debt	(35.5)		(7.5)
Repayments of receivable financing liability	(34.4)		(1.1)
Payments to extinguish long-term debt	—		(56.5)
Net change in accounts payable-inventory financing	19.9		(150.1)
Financing payments for revenue generating assets	—		(46.1)
Repurchases of common stock	—		(735.3)
Proceeds from stock option exercises	15.1		41.8
Payment of incentive compensation plan withholding taxes	(20.6)		(27.8)
Dividend payments	(135.0)		(112.3)
Other	8.5		(4.1)
Net cash used in financing activities	(374.9)		(1,042.5)
Effect of exchange rate changes on cash and cash equivalents	(11.1)		2.7
Net increase (decrease) in cash and cash equivalents	283.5		(909.0)
Cash and cash equivalents—beginning of period	258.1		1,410.2
Cash and cash equivalents—end of period	$	541.6	$	501.2
Supplementary disclosure of cash flow information:
Interest paid	$	(106.4)	$	(66.4)
Income taxes paid, net	$	(160.9)	$	(157.6)

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

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CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (dollars in millions) (unaudited)
	Three Months Ended June 30, 2022
	Common Stock
	Shares	Amount		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance as of March 31, 2022	135.1	$	1.4	$	3,403.7	$	(2,408.9)	$	(103.1)	$	893.1
Net income	—	—		—		279.3		—		279.3
Equity-based compensation expense	—	—		23.5		—		—		23.5
Stock option exercises	—	—		6.8		—		—		6.8
Coworker Stock Purchase Plan	0.1	—		7.4		—		—		7.4

Dividends paid ($0.50 per share)	—	—		0.4		(67.9)		—		(67.5)
Incentive compensation plan stock withheld for taxes	—	—		—		(0.2)		—		(0.2)
Unrealized gain on cash flow hedge	—	—		—		—		1.0		1.0
Reclassification of cash flow hedge loss to net income	—	—		—		—		0.8		0.8
Foreign currency translation	—	—		—		—		(38.0)		(38.0)
Balance as of June 30, 2022	135.2	$	1.4	$	3,441.8	$	(2,197.7)	$	(139.3)	$	1,106.2


	Three Months Ended June 30, 2021
	Common Stock
	Shares	Amount		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance as of March 31, 2021	140.4	$	1.4	$	3,262.6	$	(2,004.6)	$	(89.1)	$	1,170.3
Net income	—	—		—		274.1		—		274.1
Equity-based compensation expense	—	—		20.6		—		—		20.6
Stock option exercises	—	—		4.1		—		—		4.1
Coworker Stock Purchase Plan	0.1	—		6.5		—		—		6.5
Repurchases of common stock	(2.2)	—		—		(376.9)		—		(376.9)
Dividends paid ($0.40 per share)	—	—		0.3		(56.1)		—		(55.8)


Reclassification of cash flow hedge loss to net income	—	—		—		—		0.6		0.6
Foreign currency translation	—	—		—		—		5.3		5.3
Balance as of June 30, 2021	138.3	$	1.4	$	3,294.1	$	(2,163.5)	$	(83.2)	$	1,048.8

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CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (dollars in millions) (unaudited)
	Six Months Ended June 30, 2022
	Common Stock
	Shares	Amount		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance as of December 31, 2021	134.8	$	1.3	$	3,369.5	$	(2,570.7)	$	(94.4)	$	705.7
Net income	—	—		—		529.5		—		529.5
Equity-based compensation expense	—	—		44.6		—		—		44.6
Stock option exercises	0.3	0.1		15.0		—		—		15.1
Coworker Stock Purchase Plan	0.1	—		11.8		—		—		11.8

Dividends paid ($1.00 per share)	—	—		0.9		(135.9)		—		(135.0)
Incentive compensation plan stock withheld for taxes	—	—		—		(20.6)		—		(20.6)
Unrealized gain on cash flow hedge	—	—		—		—		1.4		1.4
Reclassification of cash flow hedge loss to net income	—	—		—		—		1.6		1.6
Foreign currency translation	—	—		—		—		(47.9)		(47.9)

Balance as of June 30, 2022	135.2	$	1.4	$	3,441.8	$	(2,197.7)	$	(139.3)	$	1,106.2


	Six Months Ended June 30, 2021
	Common Stock
	Shares	Amount		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance as of December 31, 2020	141.9	$	1.4	$	3,204.9	$	(1,813.4)	$	(95.8)	$	1,297.1
Net income	—	—		—		506.7		—		506.7
Equity-based compensation expense	—	—		36.4		—		—		36.4
Stock option exercises	0.9	—		41.8		—		—		41.8
Coworker Stock Purchase Plan	0.1	—		10.4		—		—		10.4
Repurchases of common stock	(4.6)	—		—		(735.3)		—		(735.3)
Dividends paid ($0.80 per share)	—	—		0.6		(112.9)		—		(112.3)
Incentive compensation plan stock withheld for taxes	—	—		—		(27.8)		—		(27.8)

Reclassification of cash flow hedge loss to net income	—	—		—		—		1.0		1.0
Foreign currency translation	—	—		—		—		11.6		11.6
Adoption of Income Tax ASU 2019-12	—	—		—		19.2		—		19.2
Balance as of June 30, 2021	138.3	$	1.4	$	3,294.1	$	(2,163.5)	$	(83.2)	$	1,048.8

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

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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 and cloud capabilities across hybrid infrastructure, digital experience and security.

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, 2022 and for the three and six months ended June 30, 2022 and 2021 (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. 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. The presentation of the Consolidated Financial Statements requires the Company to make estimates and assumptions that affect reported amounts and related disclosures. 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.

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, 2021 (the “December 31, 2021 Consolidated Financial Statements”). The significant accounting policies and estimates used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the December 31, 2021 Consolidated Financial Statements.

On December 1, 2021, the Company completed its acquisition of all issued and outstanding equity interests in Granite Parent, Inc., the parent company of Sirius Computer Solutions, Inc. (“Sirius”), a leading provider of secure, mission-critical technology-based solutions and one of the largest IT solutions integrators in the United States. The Company included the financial results of Sirius in its Consolidated Financial Statements from the date of the acquisition.

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.

2. Recent Accounting Pronouncements

The Company did not adopt any material new accounting standards during the six months ended June 30, 2022. In addition, there are no new accounting standards not yet adopted that would be material to the Company’s Consolidated Financial Statements.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

3. Acquisitions

Sirius

On December 1, 2021, the Company completed its acquisition of Sirius for an aggregate consideration paid, net of cash acquired, of approximately $2.4 billion. The purchase price allocation is preliminary and is subject to change during the measurement period, which is not to exceed 12 months from the close of the acquisition. During the six months ended June 30, 2022, there have been no significant adjustments to the preliminary purchase price allocation from those disclosed in the Company’s December 31, 2021 Consolidated Financial Statements. At this time, the Company is in the process of finalizing the purchase price allocation, which includes finalizing the valuation assumptions for customer relationships, such as customer attrition rate, as well as the allocation of goodwill across the reporting units.

Focal Point Data Risk LLC and certain affiliates (“Focal Point”)

On July 30, 2021, the Company completed its acquisition of Focal Point through a purchase of all issued and outstanding equity interests. The purchase price allocation was final as of June 30, 2022. There were no adjustments to the preliminary purchase price allocation disclosed in the Company’s December 31, 2021 Consolidated Financial Statements.

Amplified IT LLC (“Amplified IT”)

On March 15, 2021, the Company completed its acquisition of Amplified IT through a purchase of all issued and outstanding membership interests. The purchase price allocation was final as of March 31, 2022. There were no adjustments to the preliminary purchase price allocation disclosed in the Company’s December 31, 2021 Consolidated Financial Statements.

4. Accounts Receivable and Contract Balances

Accounts Receivable

The timing of revenue recognition may differ from the time of billing to customers. Accounts receivable presented on the Consolidated Balance Sheets represent an unconditional right to consideration, which includes unbilled receivables. Unbilled receivables represent revenues that are not currently billable but payment is unconditional and solely subject to the passage of time. These items are expected to be billed and collected in the normal course of business. The balance of the Company’s accounts receivable is classified as current for amounts expected to be collected within 12 months and noncurrent for amounts to be collected beyond 12 months. The following table details the total accounts receivable recognized and the related classification on the Consolidated Balance Sheets:


	June 30, 2022		December 31, 2021
Accounts receivable, current(1)	$	4,474.8	$	4,499.4
Accounts receivable, noncurrent(2)	179.0		197.4
Total accounts receivable	$	4,653.8	$	4,696.8

(1)Accounts receivable, current are presented within Accounts receivable, net of allowance for credit losses on the Consolidated Balance Sheets.

(2)Accounts receivable, noncurrent are presented within Other assets on the Consolidated Balance Sheets.

From time to time, the Company transfers certain accounts receivable, without recourse, to third-party financial companies as a method to reduce the Company’s credit exposure and accelerate cash collections. Such transfers are recognized as a sale and the related accounts receivable is derecognized from the Consolidated Balance Sheet upon receipt of the third-party financing company’s payment. During the six months ended June 30, 2022 and 2021, the Company sold approximately $229 million and $70 million of accounts receivable, respectively.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Contract Balances

Contract assets and liabilities represent the difference in the timing of revenue recognition from receipt of cash from customers. Contract assets represent revenue recognized on performance obligations satisfied or partially satisfied for which the Company has no unconditional right to consideration. 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 following table details information about the Company’s contract balances recognized on the Consolidated Balance Sheets:


	June 30, 2022		December 31, 2021
Contract assets(1)	$	272.9	$	134.7
Contract liabilities(2)(3)	$	452.2	$	423.3

(1)Contract assets are presented within Prepaid expenses and other on the Consolidated Balance Sheets.

(2)Includes $21 million and $20 million of long-term contract liabilities that are presented within Other liabilities on the Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, respectively.

(3)During the six months ended June 30, 2022 and 2021, the Company recognized revenue of $200 million and $147 million, respectively, related to its contract liabilities that were included in the beginning balance of the respective periods.

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, 2022, related to non-cancelable contracts longer than 12 months in duration that is expected to be recognized over future periods.


	Within 1 Year		Years 1-2		Years 2-3		Thereafter
Remaining performance obligations	$	56.8	$	23.7	$	9.5	$	1.9

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:


	June 30, 2022		December 31, 2021
Revolving Loan inventory financing agreement(1)	$	363.7	$	310.1
Other inventory financing agreements	89.4		138.2
Accounts payable-inventory financing	$	453.1	$	448.3

(1)The revolving credit facility includes an inventory floorplan sub-facility that enables the Company to maintain an inventory financing agreement with a financial intermediary.

6. Financial Instruments

The Company does not hold or issue derivative financial instruments for trading or speculative purposes. 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. For additional information, see Note 7 (Debt).

The Company has interest rate cap agreements that entitle it to payments from the counterparty of the amount, if any, by which the 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 the six months ended June 30, 2022, the Company did not enter into new interest rate cap agreements.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

As of June 30, 2022 and December 31, 2021, the Company had interest rate cap agreements with a fair value of $2 million and less than $1 million, respectively, which were classified within Other assets on the Consolidated Balance Sheets. The total notional amount of the interest rate cap agreements was $1.3 billion as of June 30, 2022 and December 31, 2021, which mature on December 31, 2022.

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.

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 table provides the activity in AOCL, net of tax, for the three and six months ended June 30, 2022 and 2021.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Change in fair value recorded to AOCL	$	1.0	$	—	$	1.4	$	—
Reclassification from AOCL to Interest expense, net	$	0.8	$	0.6	$	1.6	$	1.0

The Company expects to reclassify $3 million from AOCL to earnings within Interest expense, net within the next 12 months.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

7. Debt


		As of June 30, 2022				As of December 31, 2021
	Maturity Date	Interest Rate		Amount		Interest Rate		Amount
Credit Facility

Senior unsecured revolving loan facility	December 2026	Variable		$	110.8	Variable		$	316.4


Term Loan
Senior unsecured term loan facility	December 2026	Variable		1,384.5		Variable		1,420.0

Unsecured Senior Notes
Senior notes due 2024	December 2024	5.500	%	575.0		5.500	%	575.0
Senior notes due 2025	May 2025	4.125	%	600.0		4.125	%	600.0
Senior notes due 2028	April 2028	4.250	%	600.0		4.250	%	600.0
Senior notes due 2029	February 2029	3.250	%	700.0		3.250	%	700.0
Senior notes due 2026	December 2026	2.670	%	1,000.0		2.670	%	1,000.0
Senior notes due 2028	December 2028	3.276	%	500.0		3.276	%	500.0
Senior notes due 2031	December 2031	3.569	%	1,000.0		3.569	%	1,000.0
Total unsecured senior notes				4,975.0				4,975.0

Receivable financing liability				147.7				179.5
Other long-term obligations				10.8				13.6
Unamortized deferred financing fees				(41.9)				(46.0)
Current maturities of long-term debt				(105.5)				(102.7)
Total long-term debt				$	6,481.4			$	6,755.8

As of June 30, 2022, the Company is in compliance with the covenants under its credit agreements and indentures.

Credit Facility

The Company has a variable rate senior unsecured revolving loan facility (the “Revolving Loan Facility”) from which it may draw tranches denominated in US dollars, British pounds or Euros. The interest rate is based on LIBOR plus a margin or an alternate base rate plus a margin, where the margin is based on the Company’s senior unsecured rating. The Revolving Loan Facility is used by the Company for borrowings, issuances of letters of credit and floorplan financing. As of June 30, 2022, the Company could have borrowed up to an additional $1.1 billion under the Revolving Loan Facility. As of June 30, 2022, the Revolving Loan Facility had less than $1 million of undrawn letters of credit and $348 million reserved for the floorplan sub-facility.

Term Loan

The senior unsecured term loan facility (the “Term Loan Facility”) has a variable interest rate, which has effectively been capped through the use of interest rate caps. The interest rate is based on LIBOR plus a margin, where the margin is determined by the Company’s senior unsecured credit rating. During the three months ended March 31, 2022, the Company prepaid its 2022 quarterly principal installments for a total of $36 million. The Company is required to pay quarterly principal installments of $18 million in 2023 and thereafter, with the remaining principal amount due at the maturity date.

Unsecured Senior Notes

The unsecured senior notes have a fixed interest rate, which is paid semi-annually.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Receivable Financing

As a result of the Sirius acquisition, the Company assumed liabilities related to receivable financing. Such amounts relate to certain accounts receivable transferred to third-party financial companies that did not qualify as a sale under the terms of the agreements. The proceeds from these arrangements are recognized as a liability and the associated accounts receivable remains on the Consolidated Balance Sheet until the liability is settled. The Company did not execute any transfers under these agreements during the six months ended June 30, 2022.

Fair Value

The fair values of the unsecured senior notes were estimated using quoted market prices for identical liabilities that are traded in over-the-counter secondary markets. The fair value of the Term Loan Facility was estimated using dealer quotes for identical liabilities in markets that are not considered active. The unsecured senior notes and Term Loan Facility were classified as Level 2 within the fair value hierarchy. The carrying value of the Revolving Loan Facility approximates fair value.

The approximate fair values and related carrying values of the Company’s long-term debt, including current maturities and excluding unamortized discount and unamortized deferred financing costs, were as follows:


	June 30, 2022		December 31, 2021
Fair value	$	6,053.4	$	6,996.0
Carrying value	6,628.8		6,904.5

8. Income Taxes

Income tax expense was $98 million and $97 million for the three months ended June 30, 2022 and 2021, respectively. The effective tax rate, expressed by calculating the income tax expense as a percentage of Income before income taxes, was 26.0% and 26.2% for the three months ended June 30, 2022 and 2021, respectively. Income tax expense was $178 million and $153 million for the six months ended June 30, 2022 and 2021, respectively. The effective tax rate, expressed by calculating the income tax expense as a percentage of Income before income taxes, was 25.2% and 23.2% for the six months ended June 30, 2022 and 2021, respectively.

The effective tax rate for both the three and six months ended June 30, 2022 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. The effective tax rate for the three and six months ended June 30, 2021 differed from the US federal statutory rate of 21.0% primarily due to state and local income taxes and a discrete deferred tax expense as a result of an increase in the UK corporate tax rate effective in 2023, partially offset by excess tax benefits on equity-based compensation.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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 June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Basic weighted-average shares outstanding	135.2	139.8	135.1	140.6
Effect of dilutive securities(1)	1.6	1.9	1.7	1.8
Diluted weighted-average shares outstanding(2)	136.8	141.7	136.8	142.4

(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 0.2 million potential common shares excluded from diluted weighted-average shares outstanding for both the three and six months ended June 30, 2022 and 2021 as their inclusion would have had an anti-dilutive effect.

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 June 30, 2022, 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.

A subsidiary of the Company received a Civil Investigative Demand dated September 20, 2021 from the Department of Justice (“DOJ”) in connection with a False Claims Act investigation. The DOJ has requested information related to teaming agreements with original equipment manufacturers (“OEMs”). The Company is cooperating with the request and, given the early stage of the matter, the Company is currently unable to assess the probability of any outcome or the range of possible loss, if any.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

11.