Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated or the context otherwise requires, as used in this "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the terms "we," "us," "the Company," "our," "CDW" and similar terms refer to CDW Corporation and its subsidiaries. "Management's Discussion
and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the unaudited interim Consolidated Financial Statements and
the related notes included elsewhere in this report and with the audited Consolidated Financial Statements and the related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 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.
Overview
CDW 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, the UK and Canada. 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: CDW UK and CDW Canada,
each of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category ("Other").
We may sell all or only select products that our vendor partners offer. Each vendor partner agreement provides for specific terms and conditions, which may
include one or more of the following: product return privileges, price protection policies, purchase discounts and vendor incentive programs, such as purchase or
sales rebates and cooperative advertising reimbursements. We also resell software for major software publishers. Our agreements with software publishers allow
the end-user customer to acquire software or licensed products and services. In addition to helping our customers determine the best software solutions for their
needs, we help them manage their software agreements, including warranties and renewals. A significant portion of our advertising and marketing expenses are
reimbursed through cooperative advertising programs with our vendor partners. These programs are at the discretion of our vendor partners and are typically tied to
sales or other commitments to be met by us within a specified period of time.
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
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