CDW Corporation Form 8-K Summary
Business Context and Reporting Period
Company: CDW Corporation (CDW)
Filing Type: Form 8-K (Current Report)
Date of Report: August 25, 2017
Reporting Period: This filing retrospectively adjusts financial information for the fiscal year ended December 31, 2016, originally filed in the 2016 Form 10-K. It is not a restatement of the 2016 Form 10-K but a modification to reflect a change in segment reporting.
Key Financial Metrics (Fiscal Year 2016)
The following metrics reflect the retrospective adjustments for the year ended December 31, 2016:
- Net Sales: $13,981.9 million
- Gross Profit: $2,327.2 million (16.6% margin)
- Income from Operations: $819.2 million (5.9% margin)
- Net Income: $424.4 million
- Non-GAAP Net Income: $569.0 million
- Adjusted EBITDA: $1,117.3 million (8.0% margin)
- Total Debt: $3,234.4 million (outstanding long-term debt)
- Cash and Cash Equivalents: $263.7 million
- Net Debt: $2,970.7 million
- Cash Conversion Cycle: 19 days
Material Changes and Segment Reporting
The primary purpose of this filing is to implement a change in segment reporting effective January 1, 2017, applied retrospectively to the 2016 fiscal year:
- New Segment Structure: CDW established "Small Business" as its own distinct operating and reportable segment. Previously, Small Business results were included within the Corporate segment.
- Recast Data: Financial data for 2016 has been adjusted to present Small Business separately.
- Corporate Segment Sales: $5,889.8 million (42.1% of total)
- Small Business Segment Sales: $1,140.1 million (8.2% of total)
- Public Segment Sales: $5,589.4 million (40.0% of total)
- Other (Canada/UK) Sales: $1,362.6 million (9.7% of total)
- Impact: This change aligns financial reporting with how the Chief Operating Decision Maker assesses performance and allocates resources.
Outlook, Risks, and Subsequent Events
Management Commentary:
- Management utilizes Adjusted EBITDA as a key metric for evaluating performance and credit agreement compliance.
- Key growth drivers identified include cloud adoption, security solutions, and hyper-converged infrastructure.
- Brexit: Substantial uncertainty regarding the UK's exit from the EU could impact currency exchange rates, trade restrictions, and regulatory complexity.
- Goodwill Impairment: A quantitative impairment test was performed for the CDW UK reporting unit due to Brexit uncertainty; fair value exceeded carrying value by 16%, resulting in no impairment charge.
- SEC Investigation: An ongoing SEC investigation into vendor partner program incentives is noted, though no material loss is currently anticipated.
- Dividend: Declared a quarterly cash dividend of $0.16 per share (paid March 10, 2017).
- Debt Refinancing: On February 28, 2017, the Term Loan was refinanced, reducing the interest margin by 0.25% and removing the LIBOR floor.
- New Debt Issuance: Priced an offering of $600 million in 5.0% Senior Notes due 2025 to fund the redemption of 2022 Senior Notes.
Investor Verification Checklist
- Verify the impact of the "Small Business" segment separation on year-over-year growth comparisons for the Corporate segment.
- Review the reconciliation of GAAP Net Income to Non-GAAP Net Income and Adjusted EBITDA to understand the magnitude of excluded items (e.g., amortization of intangibles, equity-based compensation).
- Monitor the status of the ongoing SEC investigation regarding vendor incentives.
- Assess the impact of the new $600 million Senior Notes issuance and the redemption of the 2022 Senior Notes on future interest expense and liquidity.
- Confirm the company's exposure to currency fluctuations given the significant portion of sales from the UK and Canada.